Using Bankruptcy to Deal with Debt in England and Wales

Are you worried about your debts and thinking about taking the step towards bankruptcy? You are not alone in this. Each month, over 170,000 people visit our site looking for guidance on debt matters.

This guide will help you understand bankruptcy better. We’ll cover:

•  What bankruptcy really is
•  How one becomes bankrupt
•  How to work out if bankruptcy is the right choice for you
•  How to apply for bankruptcy and what it might cost
•  The way bankruptcy could affect your life and your credit file

We, at MoneyNerd, know what it feels like to be worried about money; some of us have been in the same tough spot as you. We know that debt can be scary, but there is always a way to sort it out.

This guide covers bankruptcy in England and Wales. Scotland and Northern Ireland have different processes. Get free debt advice to compare the consequences with other ways of dealing with debt.

Declaring Yourself Bankrupt

You can apply to make yourself bankrupt if you cannot pay your debts and meet the relevant eligibility conditions. There is no £5,000 minimum debt for your own application in England and Wales. The £5,000 threshold generally applies when a creditor petitions to make you bankrupt. An Insolvency Service adjudicator decides your application.

It costs £680 to apply in England and Wales. You can pay in instalments, but you must pay the full fee before submitting the application. If you cannot afford it, ask a debt adviser about charitable help and whether a free DRO could be suitable.

If your application is successful, a Bankruptcy Order will be granted and you will receive written confirmation that this has happened. Within two weeks of getting that confirmation, the Official Receiver will write to you explaining what you need to know and what you need to do.

Your assets will be taken from you, although you will be able to keep any items needed for your job such as the tools of your trade provided they do not exceed a certain amount. You will also be able to keep certain household items such as clothing, bedding and furniture, although if you have particularly expensive items such as a luxury leather sofa you may be required to sell those items and replace them with something cheaper.

You may need to be able to keep your car or motorcycle if you need it for a specific reason such as commuting to work. However, if your vehicle is particularly valuable you will probably have to sell it and replace it with a cheaper vehicle.

Your bank accounts may be frozen while the trustee checks them, although money for essential living costs may be released. Most approved pension funds are protected, but pension payments or withdrawals can affect the assessment. An affordable Income Payments Agreement or Order can last up to three years from when it starts.

There are a number of rules which apply if you own your home. If you are in this position you should take advice to find out how your home ownership will be affected.

You must co-operate with the people that are managing your bankruptcy.

If a Creditor Petitions for Your Bankruptcy

If one of your lenders petitions to make you bankrupt the process is similar although they will be responsible for the fee rather than you.

A creditor normally needs to establish that the debt has not been paid, for example using an unpaid statutory demand or judgment. A statutory demand usually gives you 21 days to pay or reach an agreement. Get urgent advice: the normal deadline to apply to set it aside is shorter.

If a statutory demand was served on you in the UK, you normally have 18 days to apply to set it aside. There must be a valid ground, such as a substantial dispute about the debt. See the government guidance on challenging a statutory demand.

Restrictions

If you are declared bankrupt there are a number of restrictions that will apply to you.

While bankruptcy restrictions apply, you must disclose your bankruptcy when obtaining credit of £500 or more. This can include several transactions with the same lender that together reach £500. Disclosure does not guarantee that a lender will approve the borrowing.

More importantly, unless you have the court’s permission you won’t be able to create, promote or manage a company and you won’t be able to be a company director. If you are a member of certain professions your bankruptcy may also have an impact as certain professions do not allow bankrupt people to practice.

Bankruptcy does not automatically prevent an application for British citizenship. The Home Office considers the circumstances under its good-character rules. If you have a citizenship or immigration application in progress, get advice from a suitably authorised immigration adviser.

These restrictions last until your bankruptcy ends, although they can be extended if you have acted dishonestly or have failed to co-operate with the people managing your bankruptcy. Failure to comply with these restrictions is a criminal offence.

Are there any other options?

A debt adviser can help you compare the options available in your circumstances, including eligibility, fees, credit effects and risks to assets. Free, impartial debt advice is available from MoneyHelper. MoneyNerd can also introduce you to The Debt Advice Service through the enquiry form below. MoneyNerd may receive a referral fee; fees may apply to a debt solution.

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Will People Find Out?

If you are declared bankrupt, the Insolvency Service will record this fact on the Insolvency Register and anyone can access this.

Bankruptcy is normally recorded publicly, including in The Gazette. If publishing your address would put you at risk of violence, seek advice about a person-at-risk-of-violence order before submitting your bankruptcy application.

Although in the past there was also a requirement to put a notice in your local newspaper, that is no longer the case. There is nothing to stop your local newspaper reporting on your bankruptcy anyway, but unless you are newsworthy because you are a prominent local businessman or a celebrity it is unlikely that this would happen.

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Alternative Debt Solutions

Bankruptcy should only really be considered as a final resort because it is a fairly consequential way to resolve debt issues. It is one of the options that you can consider if you’re in financial difficulty, but there are other options that you may want to consider first.

Some of the alternatives that you can consider are:

• a Debt Management Plan
• a Debt Relief Order
• an Individual Voluntary Arrangement

Each of these alternatives have their good and bad points so you should explore your options before making a final decision. If you are considering bankruptcy it is worth taking advice to see which route is the best route to take.