Bankruptcy

If you have a debt problem, one of your options for sorting it out might be bankruptcy. You can apply for bankruptcy if you can’t pay back your debts.

As well as applying for bankruptcy yourself, someone else you owe money to (a creditor) can apply to make you bankrupt, even if you don’t want them to. For a creditor to make you bankrupt, you must owe at least £5,000.

Remember, bankruptcy might not be your only option and it might not be the best one for you. One of your other options might be a debt relief order. You could be able to apply for a debt relief order if you are not a homeowner have debts, income and assets below a certain amount. This is a cheaper alternative to bankruptcy.

Advantages of going bankrupt

When the bankruptcy order is over you can make a fresh start - in many cases this can be after a year. Other advantages of going bankrupt include:

• the pressure is taken off you because you don’t have to deal with your creditors
• you're allowed to keep certain things, like household goods and a reasonable amount to live on
• creditors have to stop most types of court action to get their money back following a bankruptcy order
• the money you owe can usually be written off

Disadvantages of going bankrupt

To apply to go bankrupt you’ll need to pay a £680 fee. The fee can be paid in instalments however the bankruptcy application cannot be submitted until the fees have been paid in full. Other disadvantages of going bankrupt include:

• if your income is high enough, you’ll be asked to make payments towards your debts for 3 years
• it will be more difficult to take out credit while you're bankrupt and your credit rating will be affected for 6 years
• if you own your home, it might have to be sold (but you may be able to apply to your local authority for re-housing)
• some of your possessions might have to be sold, for example, your car and any luxury items you own
• if you are, or are about to be, the right age to get your pension savings, these might be taken
• some professions don’t let people who have been made bankrupt carry on working
• if you own a business it might be closed down and the assets sold off
• going bankrupt can affect your immigration status
• your bankruptcy will be published publicly (although if you’re worried you or your family maybe the victims of violence, you can ask that your details aren’t given out)

What happens at the end of bankruptcy

Your bankruptcy will normally end after a year. The Official Receiver will tell you when it is over. Most debts that haven’t been paid will be written off although some debts like court fines and student loans can never be written off.

Even when you’re no longer bankrupt, you could have a bankruptcy restriction order made against you. This can last up to 15 years and will restrict your financial affairs. This order could be made if, for example, you do not co-operate with the Official Receiver, or you take on debts knowing that you won’t be able to pay them back.