Debt Solutions

Bankruptcy.

Thinking about bankruptcy? It can offer a way forward for some people struggling with unmanageable debt, but it’s important to understand how it works and the impact it can have on your finances, assets, and future borrowing.

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What is Bankruptcy?

Bankruptcy is a legal process designed to help people who can no longer keep up with their debt repayments. It can write off many unsecured debts and provide a route towards a fresh financial start when other ways of dealing with debt are no longer realistic.

When you apply for bankruptcy, your financial circumstances are reviewed, and some of your assets may be used to repay creditors. Depending on your income, you may also be asked to make payments towards your debts for a period of time. Restrictions can apply during bankruptcy, including limits on borrowing and certain business activities.

Bankruptcy is often considered when debt has become unmanageable and alternative approaches are unlikely to resolve the problem. While it can provide relief from overwhelming debt, it’s important to understand the potential consequences before applying.

Every situation is different. The right approach will depend on factors such as your income, assets, household circumstances, and the amount you owe. Taking the time to understand your options can help you choose the most appropriate way forward.

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Bankruptcy Knowledge Base

The Bankruptcy Process

The thought of bankruptcy can feel overwhelming, especially if you’re unsure what happens next. Although each situation is different, the process follows a series of key stages.

Understanding them can help you know what to expect and give you a clearer picture of how bankruptcy works.

1 Applying for Bankruptcy

The bankruptcy process begins with an online application. You’ll need to provide details about your debts, income, assets, household expenses, and financial circumstances. There is a fee to apply, and the information you provide should be accurate and up to date.

Once submitted, your application is reviewed to determine whether bankruptcy is appropriate for your situation.

2 Application Review

After your application has been submitted, an adjudicator reviews the information you’ve provided. They will consider your financial circumstances and decide whether to make a bankruptcy order.

If your application is approved, you will officially be declared bankrupt and your creditors will be notified. If additional information is needed, you may be contacted before a decision is made.

3 Official Receiver Assessment

Once a bankruptcy order has been made, an Official Receiver is appointed to review your finances. They may ask for further information about your debts, income, savings, property, vehicles, and other assets.

The Official Receiver’s role is to understand your financial position and determine whether any assets or surplus income can be used to repay creditors.

4 During Bankruptcy

While you are bankrupt, certain restrictions will apply. For example, there may be limits on borrowing money, acting as a company director, or managing certain business activities.

Depending on your circumstances, some assets may be sold to help repay creditors. If you have money left over each month after covering essential living costs, you may also be required to make contributions towards your debts.

5 Discharge from Bankruptcy

Most people are discharged from bankruptcy after 12 months. At this point, the debts included in the bankruptcy are usually written off, and many of the restrictions come to an end.

However, bankruptcy will remain on your credit file for six years and may continue to affect your ability to obtain credit during that time. Understanding what happens after discharge can help you begin rebuilding your financial position and moving forward with confidence.

Like any debt solution, there are disadvantages and advantages you should consider before taking the next step.

1 Positives of Bankruptcy

Many unsecured debts can be written off.
Creditors included in the bankruptcy must stop pursuing payment.
It can provide a fresh financial start for people with overwhelming debt.
Most people are discharged from bankruptcy after 12 months.
Interest and charges on included debts are usually frozen.
It can reduce the stress and pressure associated with unaffordable debt.

2 Negatives of Bankruptcy

Your home or other valuable assets could be at risk.
Bankruptcy remains on your credit file for six years.
It can make it harder to access credit in the future.
Restrictions may apply to borrowing, business activities, and certain professions.
You may need to make payments towards your debts if you have surplus income.
Bankruptcy records are publicly accessible through the Individual Insolvency Register while the bankruptcy is active.

Bankruptcy isn’t the only way to deal with serious debt problems. Depending on your income, assets, and overall financial circumstances, there may be other solutions available that could help you regain control of your finances.

1 Individual Voluntary Arrangement (IVA)

An IVA is a legally binding agreement that allows you to make affordable monthly payments towards your debts over a fixed period, typically five or six years. Any remaining qualifying debt may be written off at the end of the arrangement.

2 Debt Management Plan (DMP)

A Debt Management Plan allows you to make reduced payments to your unsecured creditors based on what you can afford. It’s an informal solution and can offer greater flexibility than some formal debt options.

3 Debt Relief Order (DRO)

A Debt Relief Order is designed for people with low income, few assets, and limited disposable income. If approved, qualifying debts can be written off after a set period, provided your circumstances haven’t changed.

4 Breathing Space

Breathing Space provides temporary protection from creditor action, interest, and charges while you seek debt advice and consider your options.

1 Does bankruptcy clear all debts?

Bankruptcy can write off many unsecured debts, including credit cards, personal loans, overdrafts, and some catalogue debts. However, certain debts are not usually included, such as court fines, child maintenance arrears, student loans, and debts arising from fraud.

2 Can I keep my house if I go bankrupt?

It depends on your circumstances and whether you own property. If there is equity in your home, it may be sold to help repay creditors. If you rent your home, bankruptcy is less likely to affect your housing situation, although you should always check the terms of your tenancy agreement.

3 Will bankruptcy affect my credit score?

Yes. Bankruptcy will have a significant impact on your credit rating and will remain on your credit file for six years from the date the bankruptcy order is made. During this time, you may find it more difficult to obtain credit, a mortgage, or certain financial products.

4 Can I get a mortgage after bankruptcy?

It is possible to get a mortgage after bankruptcy, but it can be more challenging. Lenders will consider factors such as how long ago you were declared bankrupt, your credit history since discharge, your income, and the size of your deposit.

5 Can I have a bank account if I'm bankrupt?

Yes. Many people can keep or open a basic bank account while bankrupt. However, some banks may restrict certain services, such as overdrafts or credit facilities, during the bankruptcy period.

6 Can creditors still contact me after I am declared bankrupt?

Once bankruptcy has been approved, creditors included in the bankruptcy should stop pursuing you for payment. If a creditor continues to contact you about a debt covered by the bankruptcy, you should inform them of your bankruptcy status.

7 Does bankruptcy affect my partner?

Bankruptcy only applies to the person who has been declared bankrupt. However, if you share joint debts, your partner may still be responsible for repaying their share of those debts. Jointly owned assets can also be affected depending on the circumstances.

8 How much debt do you need to go bankrupt?

There is no minimum amount of debt required to apply for bankruptcy in England and Wales. The key factor is whether you are unable to repay your debts as they fall due and whether bankruptcy is appropriate for your financial situation.

Learn more about IVAs

IVA Proposal – Everything you need to know

Can you get a mortgage with an IVA?

IVA Meeting Of Creditors – What to expect

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