“Can I go bankrupt?” is a very common question. People worry that their bankruptcy application will be rejected because their debts aren’t large enough or the Official Receiver will say they should repay the money or that they don’t meet the legal criteria.
Some firms prey on these sorts of worries, see Making Bankruptcy sound scary. The helpful sounding box below is an example of this. If you click on it, you are asked to put your details into a calculator. It won’t tell you if you “qualify for bankruptcy” at all, instead they will try to sell you an IVA.
“Do I owe too little to go bankrupt?”
There is no minimum amount you have to owe in England and Wales. A creditor can only make you bankrupt if you owe them at least £5,000, but you could choose to go bankrupt owing less than that… but of course that would not normally be a sensible idea!
If you want to find out whether bankruptcy is a good option for you call National Debtline, who also have a factsheet on bankruptcy. If you are told that bankruptcy is a good option for you, you can be sure that you are “insolvent” and your bankruptcy application will be accepted.
“What about money I may inherit?”
You may be worried that your bankruptcy will be turned down because you are named in someone’s will.
If the person has already died and you are waiting to get your inheritance then you should probably not go bankrupt as the inheritance (money or house) will go to the Official Receiver. Instead opt for a temporary debt management plan and look again at your options when the estate is distributed – it may be possible to use an inheritance to clear a lot more debt with full and final settlement offers.
But if the person hasn’t died, they could change their will and leave it all to the local Cats Home. So this future inheritance isn’t an asset of yours at the moment and it won’t have any effect on your bankruptcy application.
If you are worried that the person may die soon, then read this article on Inheriting Money When Your Are Bankrupt.
“I’ve been told I don’t have enough income!”
A reader was told this. It isn’t right – you don’t have to have a budget that balances to go bankrupt.
But I suspect he was being told that he needs to sort other things out first before bankruptcy, see Can you go bankrupt with no income? for details.
The alternatives to bankrupcty
If you owe less than £20,000, are renting and have little spare income each month then you may qualify for a Debt Relief Order (DRO). A DRO will wipe out your debts after a year, you don’t have to make any payments to it and the fees are only £90 – a lot less than bankruptcy.
Individual Voluntary Arrangements (IVA) are complicated long-term legal contracts. In an IVA you will make payments for longer than in bankruptcy – 80% of people actually don’t make monthly payments at all in bankruptcy. IVAs have some advantages if you have assets such as a house to protect but if you are renting they are usually a worse choice than bankruptcy. You should read about IVAs and look at Debt Camel’s page comparing IVAs and bankruptcy as the choice is not always simple.
If you owe less than £5,000 you should check whether you meet the criteria for an Administration Order – these are very rare because you must have a CCJ and owe less than £5,000 but if you do, then go for it!
If you are over 55 and have a pension that you could access, then using this money to repay your debts could be a good idea. You may be able to get full and final settlements which would make this cheaper. If your pensions are large and you can access them, you may not technically be “insolvent” – check this with a debt adviser before applying for bankruptcy. Bankruptcy and Pensions looks more at this unusual situation.
Why a small number of bankruptcy applications are refused
When you submit your online bankruptcy application, it is sent to the Insolvency Service’s Adjudicator for checking. The Adjudicator’s office will be looking to verify that:
- the right “jurisdiction” is used – this is to stop people coming to England just to go bankrupt;
- the form was submitted by the correct person, not someone pretending to be you;
- you don’t already have a bankruptcy petition pending;
- the debts you have listed weren’t included in a previous bankruptcy petition;
- to check you aren’t over 55 with a large money purchase pension you could access; and
- to see if you are “insolvent” – this is a quick check that you can’t pay your debts now. You won’t be told “You could work for 12 years and clear them in that time so you can’t go bankrupt” – that doesn’t happen”.
Find out more about the new process in How to complete the online bankruptcy application.
Most of these checks will be simple formalities for the vast majority of people applying. The Insolvency Service itself describes having your application rejected as “an unlikely event”. The most common reason for one being rejected is the first one – that the person applying hasn’t lived in the country for long enough.
Bankruptcy – the big questions
A checklist for going bankrupt
Could a Debt Relief Order help you?
Kevin Butler says
Hi.
Great website well done.
As a recent ex CAB MASDAP case worker, can I just suggest that there may be a few occasions where Bankruptcy may be better than a DRO.
1. If a person doesn’t know all of their creditors and / or is close to the DRO limit, Bankruptcy will capture all qualifying debts even if they are not on the bankruptcy form whereas under a DRO, the client may either still be liable for those debts that may subsequently surface, or in the worst case, if those debts not listed on the DRO application do surface and take the total qualifying debts over £20k, then the DRO could be revoked.
2. If a person is expecting a change of circumstances in the next 12 months that could potentially mean they no longer meet the DRO criteria, usually an increase in income, then whilst the DRO could be revoked and back to square one, bankruptcy could just see them with an Income Payment Order.
3. If someone has made a preferential creditor payment in the last two years, A DRO could be refused whereas more consideration would be given under bankruptcy and you can remain bankrupt albeit with a potential consequence of a bankruptcy restriction order or a reversal of the transaction.
Having done DRO’s since they started, I would occasionally come across a client who preferred the certainty of bankruptcy over a DRO but most importantly, had the availability of help with the fee.
Lastly and unfortunately, due to the current high demand for the services of a qualified DRO intermediary, Bankruptcy can be undertaken more quickly if the client has the money available; for some and especially where bailiff action is involved, time can be an important factor and at the County Court in York, bankruptcy hearing waiting times were always around a week.
I am now working for a Housing Association, still in the field of money and poverty and will happily refer our residents to your website for clear explanations of technical issues. Best wishes.
Sara (Debt Camel) says
Thank you Kevin – for the kind words as well as the detailed comment.
You are of course right that there are times when bankruptcy is better – I do assume that the DRO intermediary will point them out!
overnightBR says
Hi. Very well laid out information , simple and to the point. Really great.
Question:
Can I apply for bankruptcy even though I have not yet missed ny payments or defaulted on any debt?
I am self employed and very recently had a very serious health situation which means I have within the space of a month lost my 2 clients permanently. I can no longer work in my field as my health will only deteriorate furher.
I had just taken 2 large loans to carry me through the year just before my health collapsing.
So i can afford to make payments on my debts for another 2 months, maximum 3. After that I will be making barely enough to meet essential living costs. Absolute essential only.
So, can I apply for bankruptcy given that I have not missed any payments or defaulted on any debt? I just dont see why I should be going through the stressful process of defaulting, and letters and calls, and debt collection agencies when my financial situation basically collapsed almost overnight.
Thank you for your reply in advance
Sara (Debt Camel) says
Thanks for the kind words about Debt Camel :)
The simple definition of “insolvent” is that you are unable to pay your debts as they fall due ie you will not be able to make the normal repayments to the debts in the next month. You don’t have to have defaulted already or tried to negotiate with debt collectors for lower payments and failed.
If you clearly have enough money in the bank to get you through a few more months, then it’s theoretically possible that the adjudicator might decide you weren’t insolvent and so couldn’t go bankrupt. But if your only income is from benefits (is it?) and you owe a lot of money with large repayments each month, then the adjudicator is unlikely to spend a lot of time with a calculator working out that you could probably scrape by for another month before you are totally broke.
Of course you would also have to pay the bankruptcy fees, so that would be a sizeable chunk of money – you don’t want to wait until you have no money for the fees !
In your situation I suggest you talk to Business Debtline https://www.businessdebtline.org/ about bankruptcy. You may well be right that it is your best option. But this is a very big decision and it’s worth making sure. And BD can also talk about when you should go bankrupt if that is indeed your best option.
overnightBR says
Thank you for your reply.
When i read your sentence that BR is a ‘very big decision’ I must admit it makes me nervous. I totally understand the process, the restrictions and effect on credit. But is BR something that we should be afraid of? Isn’t it there for this purpose, ie when you cannot possibly service your debts anymore? My credit would be enormously damaged anyway by the default which would be registered in a few months?
Unless I am missing something ofcourse. What would you say is the main advantage of letting defaults happen and register and then potentially/inevitably deal with CCJ’s? Would that be a viable option if one is able to deal with that process? Is it viable to to go through that and then present to the judge at the CCJ the best you can afford?
thank you once again
Sara (Debt Camel) says
Bankruptcy isn’t something to be afraid of if it’s the right solution for you. There is absolutely no advantage in letting defaults happen. I am not suggesting waiting 6 months UNLESS there is realistic chance your health and employment situation might improve.
I’m talking about
a) discussing your general situation with an expert as a way to confirm you are doing the right thing and haven’t missed anything important (honestly this is worth an hour of your time)
and
b) talking about whether to go bankrupt this month, next month or the month after.
overnightBR says
Hi Sara. I comletely understand the getting expert advice part and I will do that soon. Bedridden at moment.
I have read in forums some people saying that they chose to not bankrupt themselves. Rather they just went through the process of defaulting and dealing with the CCJs and offering what they can and just making those minimal payments for years and years and they seem to be happy with that option. Just curious under what circumstances that may be a better option to bankruptcy?
I can think of possibly if you own your own home and assets? am I right?
thank you again
Danielle says
Hi. I’ve been struggling with debt for years. I should have bitten the BR bullet years ago but never. It’s gotten so bad that I have bailiffs on my case for council tax, ccjs for water and 2 old debts. And my council rent aren’t happy with how quick I am paying my arrears off so want to take me to court for repossession.
I have a part time job, 3 kids. No assets at all. The most expensive thing I own is a £120 TV.
I’ve filled in my br form online. My problem is it is going to take me months to pay the fee. I am going to cab Monday to see if they can help with charis grants form.
My question is. (This is now out of control but as you can see I’m stuck in Limbo). Is there anything I can do in the mean time to hold the creditors off? It’s not nice bailiffs coming but I literally own barely anything. I’m assuming they won’t take a year word of what I say until I’ve filed my bankruptcy and paid fees?
I am also panicking as I had last week off work due to a hospital operation and I only received £35 ssp today. So this week I can’t afford to pay my rent, let alone the arrears payment. And it’s so serious it won’t go in my favour.
Thanks
Sara (Debt Camel) says
You also need to talk to CAB about your benefits situation and your rent arrears. They can also talk about dealing with bailiffs, which in your situation usually means not opening the door to them ever – if you own a car it needs to be in a locked garage or a long way away.
Dee4378 says
Hello
Just a quick question, I am currently frantically saving to get the fee for bankruptcy together, however in the meantime i will need to surrender my car to the finance company I’d rather voluntarily surrender than have them forcibly remove it as I understand this will be the cheapest option, I will still owe the finance company money even after the car has gone but this will be a less than what is still owe on finance, can this still be included in the bankruptcy?
Sara (Debt Camel) says
If you go bankrupt, the amount you still owe on car finance will be included in your bankruptcy. That means there isn’t much point in trying to minimise it, it is all going to be wiped out whether it is £2000 or £5000 doesn’t make any difference.
HAve you taken some advice on going bankrupt? That is always a good idea, even if you are sure it is your only option, it’s worth spending a small amount of time to have this confirmed by an expert.
dee4378 says
thank you, yes I’ve had advise and this is the only reasonable option as I have no assets and debt of approx. £ 45k I’ve made an application for payday loan refund and hopefully if this goes through I will be able to pay the bankruptcy fee within the next 8 weeks
Sara (Debt Camel) says
That sounds like a sensible plan – best of luck with the payday loan refund!
Steve says
Can anyone declare bankrupt even if they could pay 200 a month towards debts but would take 20 years to pay them off?
Sara (Debt Camel) says
You can go bankrupt if you can’t repay your debts as they fall due. If you aren’t sure about this, I suggest you talk to National Debtline on 0808 808 4000. they can say if bankruptcy is a good option for you and what other options you might have.
Rafier says
Hi I have a few questions I would like to ask. Talked to stepchange they told me bankruptcy it’s an option for me. I have a large debt and moved back with my parents so I don’t have any assets or income will bankruptcy be accepted? . In the application income and expenses section most sections don’t apply to me as everything will be paid by my family including mobile phone bills. Should I leave everything blank isn’t that suspicious ? Also I’m planning to go bankrupt soon but decided to open a new basic account with a bank. The new account should arrive in 5 working days so I don’t know the details yet should I just put my current bank account details I have now and not mention the new one I opened on the application as I still don’t have the details and was planning on going bankrupt tomorrow? I live in an area with a really bad signal after the bankruptcy is issued when will the OR contact me by phone and what happens if I have no signal and miss the call is there a way to know exactly when they will call?
Sara (Debt Camel) says
If Stepchange say bankruptcy is an option for you, your application should not be rejected.
HAve you applied for Universal credit? If so, say that on your application. But it’s not a question of what looks “suspicious”, your application needs to reflects the facts of your situation.
Your new account is not yet open so doesn’t need to be listed.
Most OR interviews are by phone. you can ask for one in person or arrange to use a landline?
Rafier says
Thank you I got it. Also would like to ask you what should I put in the creditors address on the bankruptcy application? I called banks and they don’t seem to know, some say put your local branch others say put correspondence address and I read somewhere to put the home office registered address instead. My creditors are Nationwide, Barclays, Tesco Bank, Halifax. And lastly where it asks for an account/reference number can I put my credit card number? Thanks for your help.
Sara (Debt Camel) says
It doesn’t really matter – anything sensible will do for the address and the reference number. these addresses are more important if you owe a small local firm money, not for a big bank
Rafier says
Thank you okay for the reference/account number I will put my credit cards number then. Okay one last question I promise. If before I go bankrupt I take all the money I have in my main bank account (around £1000) and put it on a new basic account will the OR take that money? Or will the OR need to know if I put it in my new basic bank account? Or what if I take the cash out? Thank you.
Daniel says
Hi- if I make an application for bankruptcy and it is denied, would I get the money back I pad for the application? Thanks.
Sara (Debt Camel) says
The fee is made up of a £130 adjudicator fee and a bankruptcy deposit of £530. If your application is refused, the deposit is returned to you but not the adjudicator fee.
BUT only a tiny number of applications are refused. If yiu have taken any advice on going bankrupt eg from National Debtline -and they say it is a good option for you then you don’t need to worry about your application being rejected.
Annemarie Davies says
Hi. I have a lot of credit card and catalogue debts, I am currently being taken to court by the council for a notice of improvement charge of £20,000. Which I thought I had paid by selling my house. I own my car with no outstanding monies owed on it. Would going bankrupt clear the debt to the council and would my car be took off me? Thank you for your help.
Sara (Debt Camel) says
So you are renting at the moment? Can you say what the credit card and catalogue debts add up to?
How much is your car worth?
Jo says
Sorry to post here, I have two basic bank accounts due to having bad credit rating in the first place. Will this account be closed and the money taken once I have applied for the bankruptcy? I’m worried I’m going to send in the application and then have a bunch of money taken and won’t be able to afford rent/food/living expenses
Sara (Debt Camel) says
This article https://debtcamel.co.uk/bank-accounts-after-bankruptcy/ looks at the issue of basic bank accounts.
If the money in your accounts is needed for daily expenses, the OR is very unlikely to claim it. The accounts may be frozen but that is normal yy only for a few days. Many people like to time their bankruptcy application so it is just after their rent is paid. You should cancel all DDs or STOs to debts as you won’t be paying them after bankruptcy. And take out enough cash to get you through a couple of weeks.
Have you taken advice on going bankrupt? If not, do talk to National Debtline on 0808 808 4000. Even if you are convinced that bankruptcy is the best option for you this is worth talking through with an expert… and they can also talk about practicalities such as timing and bank accounts.
J says
I’m loving this site. It’s answering alll the questions I had about bankruptcy. Thank you so much! I’ll still be ringing Step Change in the morning for my own personalised advice, but you’ve really set my mind a rest about going bankrupt now. Thank you ☺️ thank you 🙏