The disadvantages of bankruptcies uk

Before you apply for bankruptcy, compare it with other routes:

• Use the TRDG Budget Planner to work out your income, priority bills, essential spending and what is genuinely left.
• If you have very low spare income and few assets, read What Is a Debt Relief Order (DRO) UK? Full Guide.
• If you can afford regular payments and want to compare informal repayment options, read Debt Management Plans UK: DMP Risks & Options.
• If your budget is very tight but you are not ready for a formal solution, read UK Token Payments: 8 Steps to Manage Debt Repayments.
• If you are considering an IVA instead, read Before You Sign an IVA: Risks & Options.
• If you own your home, read Can I Keep My Home if I Am Made Bankrupt? Your Complete Protection Guide.

The point is not to avoid bankruptcy at all costs. It is to understand whether it fits your situation before you take a step that can affect your life for years.

You can apply for your own bankruptcy online if you cannot pay your debts.

The bankruptcy process is different in Scotland and Northern Ireland, so this guide focuses on England and Wales.

National Debtline explains that there is no minimum amount of debt you have to owe before applying for your own bankruptcy. You apply online, answer the questions accurately, and your application is sent to an adjudicator at the Insolvency Service.

The adjudicator checks whether you cannot pay your debts as they fall due and whether England or Wales is the correct place for you to go bankrupt.

If the application is accepted, a bankruptcy order is made and your case is passed to the official receiver.

It costs £680 to apply for bankruptcy in England and Wales.

National Debtline explains that if you cannot afford the full fee at once, you can pay by instalments of at least £5. The important point is that the full fee must be paid before you can complete your application.

This can feel frustrating if you are already struggling, but the fee is part of the application process.

If paying the bankruptcy fee is difficult, do not borrow money without understanding the risks. Speak to a suitable debt advice organisation before making a decision.

Yes. A creditor may be able to apply to make you bankrupt if you owe £5,000 or more and certain legal steps have been followed.

National Debtline explains that before applying to make you bankrupt, a creditor usually needs to send a statutory demand. A statutory demand is a formal demand for a debt of at least £5,000.

If 21 days have passed since the statutory demand was served and the debt is still at least £5,000, the creditor may be able to apply to court for a bankruptcy order.

This is serious. If you receive a statutory demand, bankruptcy petition or court paperwork, do not ignore it. There may be strict deadlines and you may need proper debt or legal advice quickly.

After a bankruptcy order is made, your case is usually handled by the official receiver.

The official receiver works for the Insolvency Service and is attached to the court. They may also act as trustee unless an insolvency practitioner is appointed.

The official receiver will ask for information about your debts, income, spending, assets, pensions and financial history. You must cooperate and answer accurately.

GOV.UK explains that if you do not cooperate, your bankruptcy could be extended beyond the normal 12 months and you could be asked to attend court.

When you are made bankrupt, many of your assets can be used to pay bankruptcy costs and creditors.

The trustee can usually sell assets that are not exempt. You may be allowed to keep basic household items and items needed for your job, such as tools or a work vehicle, but valuable items may still be sold and replaced with cheaper alternatives.

GOV.UK says the trustee will sell any assets except reasonable domestic items and items needed for your job.

This is one of the reasons bankruptcy needs careful thought. It is not just about debt being written off. It can also involve losing control of assets you own.

Your home can be one of the biggest bankruptcy risks.

If you own a property, your beneficial interest, which usually means your share of the equity after secured debts, can pass to the trustee.

GOV.UK explains that if you are the only owner, the value of the property after any secured debts have been paid transfers to the trustee. If you own the property jointly, your share of the equity transfers to the trustee.

There is normally a three-year time limit for the trustee to deal with the family home. If your beneficial interest is less than £1,000 at the end of this period, no action will be taken and the interest returns to you. If it is more than £1,000, the trustee may sell the property or apply for a charging order.

If you are behind with mortgage payments, your lender may still take possession action.

Bankruptcy does not automatically mean you will lose a rented home, but it can still create risks.

National Debtline explains that if you rent and are up to date with rent payments, you will usually be able to stay in your home.

However, if you have rent arrears, your landlord may still be able to take court action to evict you. If you build up rent arrears after the bankruptcy order, the landlord can take action to evict you and recover those arrears.

Some tenancy agreements may also include a bankruptcy clause. This does not always mean eviction will happen, but you should check your agreement before applying.

Your car may be sold unless it is treated as exempt.

GOV.UK says your motor vehicle will be sold to pay bankruptcy debts unless you need it for work, your vocation, or to meet basic domestic needs where alternative transport is not practical.

If the official receiver agrees you need the vehicle, it may be classed as exempt. But if the vehicle is valuable, it can still be replaced with a cheaper alternative.

GOV.UK gives a guide price of £3,250 for a replacement vehicle.

If your car is on finance, the position can be more complicated. A vehicle under a finance agreement cannot be exempt from bankruptcy, and the finance agreement may contain terms that allow the lender to end the agreement.

Your bank account may be frozen when the bankruptcy order is made.

GOV.UK says your bank account will be frozen and any money in it will be an asset that can be claimed by the trustee. The trustee can ask for some money to be released for daily living needs or to the other person in a joint account.

You can open a new bank account after the bankruptcy order, but you must tell the bank or building society that you are bankrupt.

National Debtline says most high street banks allow undischarged bankrupts to open a basic bank account, but it is up to the bank to decide.

Bankruptcy does not write off every debt.

GOV.UK says you are released from most debts when bankruptcy ends, except for debts such as debts gained by fraud, money owed under family proceedings, damages for personal injuries, student loans, court fines and debts created after the bankruptcy order.

National Debtline also lists debts that can remain payable after discharge, including magistrates’ court fines, student loans, child maintenance arrears, debts built up through fraud and debts owed as a result of a personal injury claim against you.

Secured debts also need careful attention. If you have a mortgage or other secured borrowing, the lender’s security rights can continue. Bankruptcy may deal with personal liability in some circumstances, but it does not simply stop a secured lender enforcing its security if payments are not maintained.

Possibly.

If you have surplus income after reasonable living costs, the official receiver or trustee may ask you to make payments through an Income Payments Agreement, often called an IPA.

GOV.UK explains that IPA payments normally last for three years. If you cannot agree the payment amount, the trustee can apply for an Income Payments Order, also called an IPO.

National Debtline says the official receiver usually expects you to pay surplus income into bankruptcy if your surplus income is above £20 per month.

This is why bankruptcy is not always “over” after 12 months. The bankruptcy restrictions may end after discharge, but income payments can continue afterwards.

Bankruptcy restrictions are not optional.

While you are bankrupt, you must tell anyone who offers to lend you more than £500 that you are bankrupt. You also cannot act as a company director without permission, act as an insolvency practitioner, or use certain business names without disclosing the name under which you were made bankrupt.

National Debtline explains that it is a criminal offence while bankrupt to take out credit of £500 or more without telling the lender, act as a director of a limited company without permission, use a new business name without revealing the name under which you were made bankrupt, or act as an insolvency practitioner.

If the official receiver believes there has been dishonest or unfit conduct, a Bankruptcy Restrictions Order or Bankruptcy Restrictions Undertaking can extend restrictions for between 2 and 15 years.

Bankruptcy stays on your credit file for six years from the date the bankruptcy order is made.

During that time, getting credit can be harder and more expensive. It can affect mortgages, car finance, personal loans, credit cards, overdrafts, mobile contracts, utility accounts, insurance and rental checks.

GOV.UK says bankruptcy will stay on your credit file for six years after the bankruptcy order is made.

Even after the six years, some lenders, landlords or insurers may ask whether you have ever been bankrupt. If asked, you must answer truthfully.

Yes. Bankruptcy is not completely private.

Details of your bankruptcy are usually recorded on the Individual Insolvency Register and published in The Gazette.

GOV.UK says once you are discharged, you will be removed from the Individual Insolvency Register within three months.

National Debtline explains that details of your bankruptcy are usually published in The Gazette and that your bankruptcy details will not usually appear in your local paper.

If publishing your address could put you at risk of violence, you should get advice before applying. You may need to apply for a person at risk of violence order before a bankruptcy order is made.

Bankruptcy may be worth considering if:

• your debts are unmanageable;
• you cannot realistically repay them in a reasonable time;
• your assets, home, job, tenancy and business position have been properly checked;
• a DRO, DMP, IVA, token payments or another route does not fit;
• you understand the public register, credit file impact and restrictions;
• you understand whether income payments may be required;
• you have received proper debt advice or insolvency guidance.

For some people, bankruptcy can be the route that finally draws a line under unmanageable debt.

But it should be chosen because it fits the facts, not because the pressure feels unbearable today.

Bankruptcy may not be right if:

• you own a home with equity that could be at risk;
• your job, professional role, business or directorship could be affected;
• you have a vehicle or asset you cannot afford to lose;
• your debts are low enough that another route may be safer;
• your income could support a realistic repayment option;
• you may qualify for a DRO instead;
• you mainly have debts that bankruptcy will not write off;
• you have not checked the impact on your bank account, tenancy, pension or public record.

If bankruptcy does not fit, it does not mean you are out of options. It means another route may need to be compared.

Before applying for bankruptcy, compare it with:

Token payments
May be useful if you have very little spare income and need to stabilise your situation while you work out the next step.

Debt Relief Order
May be suitable if you have low spare income, few assets and debts within the DRO limits.

Debt Management Plan
May help if you have regular spare income and want to make affordable payments towards unsecured debts.

Individual Voluntary Arrangement
A formal insolvency solution that may suit some people, but it has fees, risks and restrictions and should be compared carefully.

Breathing Space
May give temporary protection while you get debt advice and decide what to do next.

Bankruptcy may still be the right option, but it should be compared, not rushed.

How much does bankruptcy cost?
It costs £680 to apply for bankruptcy in England and Wales.

Can I pay the bankruptcy fee in instalments?
Yes. National Debtline says you can pay by instalments of at least £5, but the full fee must be paid before you can complete your application.

How long does bankruptcy last?
You are usually discharged after 12 months unless your discharge is suspended for noncooperation.

Does bankruptcy stay on your credit file?
Yes. Bankruptcy stays on your credit file for six years from the date of the bankruptcy order.

Can you keep your home if you go bankrupt?
It depends. If you own a home or have equity, your share can pass to the trustee and may need to be dealt with. Get proper advice before applying.

Can you keep your car if you go bankrupt?
Possibly, but only if it is needed for work or basic domestic needs and the official receiver agrees. If it is valuable, it may be replaced with a cheaper alternative.

Are all debts written off in bankruptcy?
No. Some debts are not written off, including student loans, court fines, certain family debts, fraud debts and personal injury debts.

Can you be forced to pay from your income?
Yes. If you have surplus income after reasonable living costs, you may be asked to make payments under an IPA or IPO for up to three years.

Can a creditor make you bankrupt?
Yes, if you owe at least £5,000 and the legal process is followed. This can include a statutory demand or other court action.

Should I apply for bankruptcy without advice?
No. Bankruptcy is serious and can affect your assets, income, home, job, bank account and credit file. Get proper debt advice before applying.

The Real Debt Guy has completed the DipFA Level 4 qualification and shares general debt and money education for UK consumers.

This article is for general information and education only. It is not personal financial advice, regulated debt advice, debt counselling or debt adjusting.

The Real Debt Guy is not FCA authorised. The Real Debt Guy is a letter-drafting and administrative support service. If you need advice about your specific circumstances or are considering bankruptcy, speak to a qualified debt adviser, licensed Insolvency Practitioner, solicitor or FCA authorised organisation as appropriate.