Bankruptcy is the right option and a good move for some people. If you are going through the process, you probably have endless questions and should always seek knowledgeable advice.
Here we discuss what will happen to your wages after bankruptcy, as well as other common questions to do with your bank, property, vehicles and more!
Scroll down this page for answers to the most asked questions on this topic.
What is bankruptcy and a bankruptcy order?
Bankruptcy is a type of insolvency for people who cannot pay their debts in a reasonable time, either because they owe significant debts, are in financial difficulty – or both.
If you are made bankrupt, any money or assets you do have is shared among creditors by an insolvency trustee.
You then get a fresh start, but it will be visible on your credit file for at least six years. This significantly damages your credit rating and makes accessing future credit extremely difficult.
At the time of writing, it costs £680 to apply for bankruptcy.
Most people will apply for bankruptcy themselves, but creditors can try to make you go bankrupt – known as involuntary bankruptcy – if you can pay your debts but refuse to do so.
Bankruptcy is the process in Northern Ireland, England and Wales, but in Scotland the equivalent insolvency process is called Sequestration.
When are you discharged from bankruptcy?
You are typically discharged 12 months after bankruptcy. This can be extended with a Bankruptcy Restriction Order (BRO), which is a legal order extending the timeframe you are placed under bankruptcy restrictions. The latter order can last anywhere between two and 15 years.
Does bankruptcy clear all debts?
It will prevent you from having to pay most debt – but not all types of debt. You will no longer be asked to make payments towards debts arising from a credit card, personal loan and similar consumer debt. But bankruptcy will not stop you owing:
- Magistrate Court fines
- Child maintenance debt
- Social fund loans
- Student Finance debt
- Some other fines from the courts
You may have to pay some money from your wages to previous creditors – more on this below.
Who is the Official Receiver?
An Official Receiver (OR) is someone who is an officer of the court and works for the Insolvency Service.
They are made responsible for handling a bankruptcy order and deciding if your application is accepted. They may be involved in the complete process. Sometimes someone called an insolvency practitioner will deal with your application.
What happens after bankruptcy?
Once you are declared bankrupt, you no longer own your assets. The good news is that your creditors can no longer request payments to clear your debt or start enforcement action against you.
The only times you can be contacted about debt is when you are being chased for a payment to clear debts not included when going bankrupt, such as Magistrate fines etc.
Will it affect your job?
For most people, bankruptcy will not affect their job and they do not need to inform their employer. In limited situations, an individual could lose their job as a result. This is most common if the person has a job in finance, including insolvency practitioners and bank workers.
But there are other jobs that can be affected, such as:
- Regulated professions – e.g. a job in law or an accountant
- Gambling professions – if you have a job in the gambling industry, such as a casino dealer, your license is revoked but can be reapplied for.
You will no longer own your limited company business after bankruptcy, but you can have a sole trader business in the future. It may be difficult to get funding for any other future business.
What happens to wages after being made bankrupt?
If you have more than £20 disposable income each month from your wages, you can be asked to make repayments towards your debts under an Income Payments Agreement (IPA). The arrangement is put in place for three years or until you are discharged. You won’t have to go to court for this to be arranged.
The exact monthly payment is worked out based on your disposable income (your income minus living expenses), but you won’t have to pay it if you receive benefits with no employment. If you refuse, you could receive an Income Payments Order (IPO) from the court.
If you have a private pension, it could be deemed an asset. More information can be found here.
What happens to your bank account when you go bankrupt?
Your bank accounts will be frozen whilst you go through the bankruptcy application process. Many banks will then close your account.
Do not open a new one until after you have been made bankrupt. The OR will have it frozen or closed if you do.
Once your bankruptcy is confirmed, you may have trouble finding a new account.
But banks now offer basic accounts with limited features that you can use to be paid wages and make in-store purchases only.
Can I keep my car if I go bankrupt?
After bankruptcy, there is little chance of being able to keep your car. You can only keep it if the Official Receiver believes that it is essential to your living. This includes:
- Needing it as part of your disability
- Needing it for work
- Needing it to get to work or school
However, if there is public transport and affordable taxi alternatives, it is unlikely that it will be deemed essential.
Remember to cancel your insurance and road tax if you have to give it up.
If you are still paying for a vehicle on a monthly hire purchase agreement, the company will take it back as per the contract. You are not likely to get any of the money back you paid previously.
Will I lose my house if I am bankrupt?
You may or may not lose your home after bankruptcy. The Official Receiver can try to sell it to repay creditors, but it may not be sold immediately if:
- Family members and dependents live in the house with you. You can be given an additional year to sort other living arrangements.
- Family members or someone else can buy out your share.
The Official Receiver has 3 years to sell your home from the date of the bankruptcy order. If it is not sold within that timeframe, it can no longer be sold and you will keep it. Get advice if three years have passed and you believe you own the property again.
You cannot give it away or sell it for less than its value beforehand. This would be a bankruptcy offence.
Will I get kicked out of my rental property?
You are not likely to be kicked out of a rental property. The exceptions to this are when your rental contract denies anyone who is bankrupt from living there, or if legal proceedings are already in motion to have you removed due to rent arrears.
If you rent and are in this situation, you should contact Citizens Advice for help!
Access more help if you go bankrupt!
If you are considering bankruptcy, you should get debt advice straight away from a registered charity to learn about your (non-)insolvency options.
You may be able to avoid this solution and use another method, such as an IVA. We have a dedicated page explaining all debt solutions.