Bankruptcy is a possible route for anyone who cannot pay their unsecured debts as and when they are due. It will provide protection from creditors, and all included debts will be written off once the bankruptcy is discharged after 12 months. Any interest & charges on your debts are frozen during the course of the bankruptcy.
Is Bankruptcy right for me?
Bankruptcy can help those struggling with their debts, however it is not a suitable option for everyone. Bankruptcy may be suitable for you if all of the following apply:
you are unable to pay your debts as they fall due
you do not own any valuable assets and there is little or no equity in your home
it is unlikely that your situation will improve
you live or carry out a business in England or Wales, or have done so at any point in the last 3 years and live permanently in another European state (apart from Denmark)
There is no minimum amount of debt you need to be eligible. If the value of your debt outweighs the value of your assets, then bankruptcy may be worth considering.
Will I lose my home?
If you own your home, it may be sold, with the proceeds used to paying your creditors. This applies whether your home is freehold or leasehold, solely or jointly owned, mortgaged or otherwise.
You must not attempt to dispose of your property or sell it for a below market value price, in order to avoid the property being surrendered to the Official Receiver.
If you rent your home, you are unlikely to lose it unless your tenancy agreement says that you cannot rent the home if you're bankrupt. You may find it harder to find a new home to rent.
Do I have to tell my employer?
Generally, you do not have to tell your employer if you go bankrupt. However, you should check the terms of your contract of employment carefully to see if it covers this scenario. This is particularly likely to apply to you if you work in a financial organisation or role.
Will I lose my job?
In most cases, going bankrupt should have no effect on your employment. However, this is not always the case and there may be issues if one of the following applies to you:
you are employed in a role that involves financial matters, such as working in a bank, and your employer is unwilling to carry on employing you because of your bankruptcy
you are employed in certain regulated professions that require you to be licensed or registered and going bankrupt would disqualify you as a member of your professional body. This applies to some professions like law, accountancy, financial services and banking - if you're unsure whether this would apply to you, you should check directly with your professional body
you are an insolvency practitioner - you would be banned from working in the role when declared bankrupt
you are licensed to carry out a specified role in the gambling industry, such as a dealer or croupier - your licence will automatically lapse when you become bankrupt, although you may be able to reapply to the Gambling Commission
What if I am self-employed?
If you are self-employed as a sole trader, you can start trading again. It is worth remembering that you will find it very difficult to get credit, which may make it difficult for you to carry on trading.
Going bankrupt will also place certain restrictions on the involvement you can have in running a business. If you break any of these restrictions you will be committing a criminal offence. They include:
you cannot be a company director without permission from the court
you cannot be involved in setting up, promoting or managing a limited company without permission from the court
you can be self-employed or trade in a partnership, but if you run a business under a name that is different to the one in which you were made bankrupt, you must tell everyone you do business with the name under which you were made bankrupt.
What if I own a business?
If you’re self-employed, your business will be closed. Any business assets will be claimed by the trustee.
Your employees may make a claim for unpaid wages and holiday pay,
payment in place of notice, and redundancy. They’ll make this claim to
the National Insurance Fund, or the money may be claimed in the
The restrictions on your business end when bankruptcy ends, unless the official receiver feels you’ve been dishonest. They can then apply to extend the restrictions.
What will happen to my bank accounts if I declare bankruptcy?
When the bankruptcy order is made, you must:
make sure you don’t use your bank account
give your cards and cheque books to the trustee
Your bank account will be frozen. Any money in your account will be an asset and claimed by the trustee.
The trustee can ask to release some money:
for your daily living needs
to the other person in a joint account
The bank is allowed to use money from one of your accounts to pay
your debts on another account you hold with them. This is called ‘set
Otherwise, money owed to the bank (eg, if you’re overdrawn) is a
bankruptcy debt, so you can’t pay this to the bank directly. The
exception is if the bank has a charge on your home (security for payment
of a loan like a mortgage).
Open a new account
You can open a new bank account after the date of the bankruptcy
order but you must tell the bank or building society that you’re
bankrupt. Some banks will let you use your old account after they’ve
spoken to the trustee.
What will happen to my pension if I declare bankruptcy?
Most pension schemes aren’t included in your bankruptcy (for
bankruptcy orders made after 29 May 2000) and they can’t be claimed by
The pension scheme must be a UK state pension scheme or a scheme
approved or registered by HM Revenue & Customs. Approved or
registered pension schemes are usually:
occupational (employers) pension schemes approved for tax purposes
personal pensions approved for tax purposes
retirement annuity contracts
If your pension scheme is not an approved or registered scheme you may be able to exclude it from your bankruptcy by:
applying to the court for an ‘exclusion order’, or
making a qualifying agreement (an understanding with the trustee that the pension should be excluded)
If your pension is part of the bankruptcy, it can be used to make payments to your creditors.
Bankruptcy in Scotland
Bankruptcy (also known as sequestration in Scotland) is the legal process by which you are formally declared insolvent. This means you can't pay your debts as they become due.
To be declared bankrupt, you must show you have:
debts over £1,500
lived in Scotland during the last year or currently live in Scotland
Ironically, going bankrupt is not cheap and there are some costs involved should you wish to apply for bankruptcy.
England and Wales
If you apply for your own bankruptcy, you will need to pay the following costs:
adjudicator fee of £130
a deposit of £550
This means you'll need to be able to pay £680 in England and Wales if you want to go bankrupt. However if you apply online, there is an option to pay this bankruptcy fee through instalments.
If you live in Northern Ireland and wish to declare bankruptcy, you will need to pay the following costs.
the court fee is £137,
the bankruptcy deposit is £525, and
there is a fee of £7 payable to a solicitor before whom you swear the contents of your statement of affairs
This means you will need to pay £669. If you live in Northern Ireland and you‘re on a low income or receive certain benefits, the court fee may be waived. Whatever your circumstances the bankruptcy deposit always has to be paid.
If you live in Scotland and declare sequestration (Scottish bankruptcy): the Accountant in Bankruptcy fee is £200. There are no exemptions or restrictions to this, so the total fee amount needs to be paid in full.
If you chose to declare minimal assets process (MAP) bankruptcy, there is a £90 application fee, again with no exemptions.
In Scotland, the Accountant in Bankruptcy may order you to make a payment each month for up to four years after sequestration. This is called a ‘debtors contribution order’ and is based on your ability to pay. You won’t be asked to pay anything after MAP bankruptcy.
The Bankruptcy Application
The debtor's bankruptcy application is the online form for bankruptcy. It is the form in which you ask to become bankrupt because you're unable to pay your debts.
information about you and any businesses you run
declarations about your eligibility for bankruptcy based on where you live or carry out business
details of any previous bankruptcies you've been granted in the last five years
details of any other insolvency procedures you've been through.
When you become bankrupt, the official receiver plays an important role in your bankruptcy. Their job is to take control of some of your property, assess whether you can afford to make any payments towards your debts, investigate your conduct and financial affairs before and during the bankruptcy, which may include asking you to attend an interview, complete a questionnaire or attend a public examination.
The official receiver also informs your creditors of your bankruptcy and in some cases, is responsible for distributing your property and money among your creditors.
When you go bankrupt, the official receiver will investigate your financial behaviour, both before the bankruptcy order was made and while it is in force.
There are lots of different kinds of bankruptcy offence, but the important thing to know is that they count as a criminal offence. Examples of bankruptcy offences include:
giving away or selling property that you got on credit in the 12 months before you applied for bankruptcy, at a time when you hadn't paid for the property
lying or failing to mention relevant information about your finances or property in your bankruptcy application, during the bankruptcy interview or any other time you make a statement about your financial situation
hiding details of your property from the bankruptcy trustee
hiding any belongings worth £500 or more, which should be handed over to the official receiver or trustee
giving away or selling property fraudulently during the five years before you were made bankrupt
carrying on a business under a different name from the one in which you were declared bankrupt
holding certain jobs or positions without the court’s permission, such as a company director
breaking any of the other restrictions that are placed on you during the bankruptcy period
What happens if I commit a bankruptcy offence?
If you commit a bankruptcy offence, this counts as a criminal offence. You could be punished with:
a fine and/or
being sent to prison for up to seven years.
In addition, you could also have a bankruptcy restrictions order made against you, extending the period during which you have to follow certain restrictions for anything up to 15 years.
Discharge from bankruptcy
After a year of being bankrupt, you'll usually be discharged from bankruptcy. This releases you from any debts covered by your bankruptcy. It also takes away the restrictions of bankruptcy, unless a bankruptcy restrictions order or bankruptcy restrictions undertaking has been made.
How long will bankruptcy stay on my credit file?
Your bankruptcy will appear on your credit report for six years, or until your discharged if this takes longer.