Bankruptcy Explained

Bankruptcy is a formal legal process that may help people who cannot afford to repay their debts.

It is generally considered a solution of last resort and should only be considered after exploring all other available options. Bankruptcy has serious consequences and may affect your finances, assets and credit record for several years.

Bankruptcy is a legal debt solution available to people in England and Wales who are unable to pay their debts.

Once you are declared bankrupt:

• Many of your debts may be written off.
• Creditors usually cannot continue pursuing you for included debts.
• A trustee may take control of certain assets.
• Restrictions may apply while you are bankrupt.

Bankruptcy is intended to give people a fresh start when their debts have become unmanageable.

You may be able to apply for bankruptcy if:

• You cannot pay your debts as they fall due.
• You have little or no realistic prospect of repaying what you owe.
• Other debt solutions are unsuitable.

Before applying, it is important to understand the full implications and seek independent debt advice.

Bankruptcy can usually cover many unsecured debts, including:

• Credit cards
• Personal loans
• Overdrafts
• Store cards
• Catalogue debts
• Payday loans
• Utility arrears
• Council Tax arrears
• Benefit overpayments (in some circumstances)

Some debts are not normally included in bankruptcy, such as:

• Child maintenance arrears
• Student loans
• Criminal fines
• Confiscation orders
• Certain debts arising from fraud

You may still be responsible for paying these debts during and after bankruptcy.

If you own your home, bankruptcy may affect it.

The trustee will consider whether there is any equity in the property and what options are available.

Depending on your circumstances:

• You may be able to remain in the property.
• A partner or family member may be able to buy out your share.
• The property could potentially be sold.

If you are a homeowner, it is especially important to obtain advice before applying.

If you have surplus income after paying your essential living costs, you may be asked to contribute towards your debts.

These payments are known as an Income Payments Agreement (IPA) or Income Payments Order (IPO).

Contributions can continue for a period after bankruptcy begins.

Not necessarily.

Many everyday household items are protected, including:

• Clothing
• Furniture
• Bedding
• Essential household goods
• Equipment needed for work (subject to certain limits)

Luxury items or valuable assets may be considered by the trustee.

In most cases:

• Bankruptcy lasts for 12 months.
• You are normally discharged automatically after this period.
• Some restrictions may continue in certain circumstances.
• Any agreed income payments can continue beyond discharge.

Bankruptcy will have a significant impact on your credit file.

It can make it more difficult to:

• Obtain credit.
• Take out a mortgage.
• Open some financial products.
• Access certain forms of borrowing.

Bankruptcy may:

• Write off many debts.
• Stop most creditor action.
• Provide a fresh financial start.
• Reduce the stress of unmanageable debt.

For some people, it can be the quickest route to becoming debt free.

Bankruptcy can:

• Affect your credit rating.
• Impact home ownership.
• Result in the loss of certain assets.
• Affect some employment roles or professional memberships.
• Require ongoing income contributions.

Depending on your circumstances, alternatives may include:

• Breathing Space
• Debt Management Plans (DMPs)
• Debt Relief Orders (DROs)
• Individual Voluntary Arrangements (IVAs)
• Informal repayment arrangements

A debt advisor can help you compare all available options.

Our advisors can help you:

• Understand whether bankruptcy is suitable for your situation.
• Review your income, expenditure and debts.
• Compare all available debt solutions.
• Check for benefits and financial support.
• Access free, confidential debt advice.