What is bankruptcy?
Bankruptcy is a formal type of insolvency that can free you from most debts you have no realistic way of repaying. It has serious, lasting consequences, so it’s usually considered when other options aren’t suitable — but for some people it genuinely is the right answer and the cleanest route to a fresh start. The key is understanding exactly what it involves before you decide.
How does bankruptcy work?
You can apply for your own bankruptcy online through the Insolvency Service, for a fee. Once you’re made bankrupt, an official receiver (and sometimes a trustee) takes control of your assets, which may be sold to pay something towards your debts. Most bankruptcies last around 12 months, after which you’re usually discharged and released from the debts included.
Who might consider bankruptcy?
- You have no realistic prospect of repaying your debts within a reasonable time.
- You have few assets that could be lost, or you accept the risk to those you have.
- Other solutions — a DMP, IVA or DRO — aren’t suitable for your situation.
- You want a defined end point and a genuine fresh start.
What could I lose?
This is the part that needs the most careful thought. Your assets, which can include your home and your car, may be sold to pay towards your debts. If you have spare income, you may be required to make payments through an Income Payments Arrangement for up to three years. Certain jobs and professions can also be affected. These are significant consequences, which is exactly why it’s worth exploring the alternatives first.
Bankruptcy isn’t the only option. Depending on your circumstances, an IVA, a Debt Relief Order or an informal Debt Management Plan may be less drastic and more suitable. It’s always worth getting advice before applying.
What happens to my debts?
Most unsecured debts are written off, giving you a clear line under them. Some debts are excluded, however — for example certain court fines, student loans, and debts arising from fraud. Advice will help you understand which of your particular debts would and wouldn’t be cleared.
Weighing it up
Potential benefits
- Most unsecured debts are written off
- Included creditors must stop contact and action
- Usually lasts around 12 months before discharge
- May involve no ongoing payments if income is very low
- A defined end point and a genuine fresh start
Things to consider
- Your home and other assets may be sold
- Payments possible for up to three years if you have spare income
- Seriously affects your credit rating for six years
- Recorded on the public Individual Insolvency Register
- Can affect certain jobs and professions
Frequently asked questions
How long does bankruptcy last?
Most bankruptcies last around 12 months, after which you’re usually discharged. However, if you have spare income you may have to make payments through an Income Payments Arrangement for up to three years.
Will I lose my home if I go bankrupt?
Possibly. Your assets, which can include your home, may be used to pay towards your debts. This is one of the most serious aspects of bankruptcy, and a key reason to explore alternatives and get advice first.
Does bankruptcy clear all my debts?
It clears most unsecured debts, but some are excluded — for example certain court fines, student loans and debts arising from fraud. Advice will help you understand which of your debts would be covered.
How much does it cost to go bankrupt?
There’s a fee to apply for your own bankruptcy through the Insolvency Service. If money is very tight, free debt advice organisations can help you understand the cost and whether bankruptcy is right for you.
Will people know I’ve gone bankrupt?
Your bankruptcy is recorded on the public Individual Insolvency Register. It’s not usually advertised in local newspapers as it once was, but it is a matter of public record while active.
Can I get credit after bankruptcy?
Your credit rating will be seriously affected, and bankruptcy stays on your credit file for six years. Rebuilding credit is possible over time, but your ability to borrow will be limited for a good while afterwards.
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