Bankruptcy has many disadvantages but it is over quickly – only a year. If you go bankrupt, your debts will be wiped out with only a few exceptions, the most common being student loans. It gives you a new start to rebuild your finances, an escape from an unmanageable debt situation.
This Guide to Bankruptcy provides information so you can:
- make the right decision about whether bankruptcy is your best option; and
- find out the real facts about what happens after you go bankrupt.
There is a lot of detail here – start by looking at the links in orange if you want an overview.
Contents
Concerns about going bankrupt
Bankruptcy – the Big Questions covers the most common worries that people have, such as will you lose your home? your car? your job? can you ever get a mortgage afterwards? who will be told that you have gone bankrupt?
Other worries you may have include:
- what types of debts are included?
- can you continue in business after bankruptcy if you are self-employed? Most people can, but contact Business Debtline for specialist advice about this.
- will my bankruptcy be approved?
- living abroad and want to go bankrupt?
- is it OK to spend backdated benefits before going bankrupt
- might you get a Bankruptcy Restriction Order (BRO)? Find out why a few people get a BRO and whether one would make much difference to you.
- do you have to tell the OR about all your expenditure? You may be asked questions about expenditure before you went bankrupt but don’t normally have to report on what you spend your money on after you go bankrupt.
- what might the Official Receiver take? looks at concerns about your possessions – most people don’t lose anything!
- what can the Official Receiver make you do? looks at concerns about being told how to live your life – might you be made to move, stopped from changing jobs? etc The answers are almost all “no”.
- is your pension safe in bankruptcy? for most people the answer is still Yes your pension is safe.
- is a new partner’s house safe if you go bankrupt? yes – find out the facts.
Myths about bankruptcy
There is a lot of poor, incomplete or just plain wrong information around about bankruptcy on the internet and social media.
Much of this comes from people who will make money if you decide to choose an IVA instead of bankruptcy. Here are some examples of misleading or incomplete information.
One reader put off going bankrupt for a long while because she was worried by what she had heard. Here is her honest account of what it was really like for her: “Why I had to go bankrupt & how it went”.
Preparing for bankruptcy
The process of going bankrupt gives an overview, including what you will need to put on your bankruptcy application. For more details see:
- help with the high bankruptcy fees – this covers your options for getting the money together.
- how to pay the fees – this looks at the mechanics of how to pay them when you have the money. This can be done by instalments.
- how to fill in the online bankruptcy application – it’s long but it’s not difficult, so find out what information you will need.
- your bank account options – you may need to change bank accounts. This link is kept updated with a list of accounts that you are allowed to have when you are bankrupt.
- a checklist for the application process – knowing what you will need may make it all a bit easier.
After you go bankrupt
A Timeline for Bankruptcy shows what happens when.
What happens after you have gone bankrupt summarises when you will be discharged, what restrictions will apply before your discharge etc.
You will have an interview with the OR. This is usually over the phone but you can ask for a face-0to-face interview if you find the phone difficult. You may be interested in this account by a Debt Camel reader which goes into some details about her OR interview: “Why I had to go bankrupt & how it went”.
The Official Receiver will decide if you have enough surplus income to make monthly payments, this is called an Income Payments Agreement (IPA). Most people who go bankrupt do not have to make any payments. If you do, the payments will last for three years, but they are flexible so if your situation changes they can be reduced or increased.
Some more detailed articles:
- who should you tell after going bankrupt? – you don’t have to tell anyone, but sometimes it can be helpful if you do;
- what happens if you forgot to list a debt on your application? – it’s usually OK, the debt will be included in your bankruptcy anyway, but check the details;
- taxes and bankruptcy;
- repossession after bankruptcy – what you should, and should not, do if you want to hand back the keys;
- inheriting money when you are bankrupt;
- will the Official Receiver take your redundancy money?
When does your bankruptcy end?
Almost everyone is discharged from bankruptcy after a year:
What happens when you are discharged? This is the end of your bankruptcy and your debts in your bankruptcy are wiped out. the small number of people who have to make monthly payments will have to carry on making any IPA payments for the rest of the three year IPA period.
How to repair your credit record after bankruptcy The credit repair process can start a few months after you are discharged, but the bankruptcy marker will remain on your credit record until six years after you went bankrupt.
The alternatives to bankruptcy
Even if your debts are clearly impossible, you may still have other debt options::
- IVA or bankruptcy – IVAs were designed for people who can’t go bankrupt because of their jobs or who have assets to protect. They take longer than bankruptcy and will cost you more in monthly payments, but if there are reasons why bankruptcy won’t work for you, an IVA could be a good alternative;
- a long DMP or bankruptcy – bankruptcy lets you put your debt problems behind you, and it is often better than being stuck in debt management for a long while;
- a Debt Relief Order is better if you qualify – a DRO is cheaper, easier, and quicker than bankruptcy, so if you are renting and your debts are less than £20,000 see if you meet the other DRO criteria;
- selling the house it may be possible to keep your house after you go bankrupt if there is no equity or someone else can “buy” your share of the equity from the Official Receiver. But so think if it would be better to sell the house, especially if it is the wrong size, in the wrong place, your mortgage is interest-only or there is an expensive secured loan.
Even if you are sure bankruptcy is your best (or only) option, it is still good to take some advice about this, see Where to get help and advice for suggestions.
Is a creditor threatening bankruptcy?
This guide has assumed that you are deciding to go bankrupt. It is also possible for a creditor to make you bankrupt – this is rare but if you receive a Statutory Demand you cannot safely assume that your creditor is bluffing and ignore it. In particular, HMRC and local councils can and do make people bankrupt because of tax debts. If you have assets such as a house, if a creditor makes you bankrupt you may end up incurring tens of thousands of pounds of costs to get the bankruptcy annulled.
If you think a creditor is seriously threatening bankruptcy, or if you receive a Statutory Demand, you need legal advice fast – go to your local Citizens Advice, a local Law Centre or a solicitor who has experience of personal insolvency.
Don says
Hello Sara
I used my local authority pension pay out to start a new business in my retirement, I also ran up debts on credit cards and overdraft.
The business was going well, however I closed it without debt due to illness.
I managed to keep up with my payments, however the debt was still rising so I contacted C A, and requested help with a DRO application.
They advised me not to pay any creditors, also to wait for a old default to come off my credit file to help with the application.
My debts continued to grow whilst waiting due to charges from creditors, my initial debts was £18,000 however to to waiting months it soon passed 20k.
I believe the advise was incorrect and has now put me in a in a untenable situation, I have a new bank account which is in overdraft but cleared monthly, I don’t think bankruptcy will help and the stress will not help my medical conditions, am 72.
I am unable to get proper advice, I believe CA has caused this, I considered taking legal issue with them but I don’t believed I can as they are a registered charity.
I fear passing on and leaving my family in disgrace.
Sara (Debt Camel) says
I don’t understand what has happened here. It is never sensible to wait until a debt has dropped off a credit record before applying for a DRO.
I wonder if there was some other reason why a DRO at that time was not suitable for you – perhaps you had been paying some creditors and not others? It is usually better to have had several months of paying everyone the same – or not paying anyone anything – before submitting a DRO as it avoids problems about “preferring one creditor”.
I don’t know how long this waiting period was. A debt of 18k will not normally jump to over 20k in a few months unless you have been borrowing more or more debts came to light.
In practice there is very little difference between a DRO and bankruptcy for someone your age, as there is no question of your employment being affected. A DRO and bankruptcy have similar impacts on your credit record and your ability to borrow money in the future. A bankruptcy application is quite simple these days, there is no longer any need to go to court and Citizens Advice can help you with this.
But whatever happened has not been properly explained to you and it should have been, I suggest you go back to Citizens Advice and say you feel they gave you bad advice and ask for an explanation. If you are not happy with what you are told, tell them you want to make a formal complaint about this. And if you are not happy with the reponse to your complaint, you can take the complaint to the Financial Ombudsman – that is a consumer-friendly servuice where you do not need to employ a solicitor.
Don says
I paid everyone without preference, nor did I borrow anymore, I think from memory I was waiting for the old default to be illuminated for many months which I couldn’t understand., all my creditors kept adding fees and charges.
At least now I have a direction and will contact C A.
Thank you so much
Sooze says
My husband’s bankruptcy is due to end on 19/02/21. He has just received notification from an insurance company about an old personal pension plan he took out in 1988 and stopped paying into in 1993, however it has carried on getting dividends and is now worth a considerable sum. He had totally forgotten about this pension. The company had apparently been sending annual statements to a home we left 20 years ago and they have only now tracked him down! Does he need to tell the Official Receiver about this pension, and what will happen to it if he does?
His debts in the bankruptcy (all debts, he has no others) amount to £37,000, the pension is worth £55,000 apparently. He is 70.
Thanks in advance for any information.
Sara (Debt Camel) says
What other pensions did he have when his bankruptcy started – any personal pensions that he had not drawn any money from?
has an IPA been set – so he would have to make payments for 3 years to the Official Receiver?
Sooze says
He has 3 other small personal pensions that he’s been getting monthly payments from since he retired 4 years ago. No others.
No, one year only, no IPA.
Sara (Debt Camel) says
The OR has the power to have his bankruptcy cancelled (technical term is annulled) in some circumstances. But is this one of them?
The OR’s technical guidance (https://www.gov.uk/guidance/technical-guidance-for-official-receivers/57-pensions) says:
57.24 Where the bankrupt is aged 55 or over and holds an undrawn personal pension fund, the official receiver should obtain the current fund value… Where the pension fund value exceeds the total unsecured liabilities and, in a debtor’s application case, the bankrupt might have elected to draw the pension before applying for bankruptcy, official receivers are asked to consider whether the bankrupt met the insolvency test. Where they did not, the official receiver should consider making an application for annulment on the grounds that the order ought not to have been made.
and the gov.uk Insolvency Service Guide to Bankruptcy (https://www.gov.uk/government/publications/guide-to-bankruptcy/guide-to-bankruptcy) says in 5.3
‘If you are able to take money from your pension following changes to the law in April 2015, but have chosen not to do so, the trustee may look at the value of your available pension fund. If this would give you access to enough money to make a different arrangement to pay your creditors, the trustee can ask the court to cancel (annul) the bankruptcy.’
So four points
1) if he had put the pension on the bankruptcy application, would the bankruptcy have been approved? He would have had to pay fees and tax if he had withdrawn all this pension money. 25% of the55k would be tax free but the rest would be treated as income in that tax year. heu would presumably have had to pay 20% basic rate tax on most of it but depending on his other income (state pension and employers pensions) some may have been at 40% – see https://www.moneysavingexpert.com/banking/tax-rates/ which explains tax bands. So although 55k sounds a lot more than the 37k debts, in practice after fees (likely to be several thousand, possibly more) and tax this isn’t a lot more at all.
If his bankruptcy would have been approved if the pension had been put on the application form, then the OR will have no interest in annulling his bankruptcy.
2) He did not “abuse the protection given to pensions”. He did not choose not to withdraw the money – he was unaware of its existence.
3) he must inform the OR asap. He can do this by email. Attach the information you received from the pension co. Say he does not know what the fees and taxes would have been if he had withdrawn the pension but you think they could have been significant. Emphasise that he did not put the pension on your bankruptcy application as he was were unaware of it, so could not have chosen to withdraw the money to repay debts.
4) I suggest he should also contact your local Citizens Advice and ask for an appointment with a debt/money specialist to discuss this. Do not delay telling the OR for an appointment to be arranged. If the OR comes back and asks more questions, he wants to be able to take debt advice on this very fast. If the person at Citizens Advice isn’t familiar with the area, they can get help from the national Specialist Debt Advice Service (SDAS) that provides expert assistance to debt advisers. SDAS has recently helped with a large pension/Debt Relief Order enquiry and they would help with a case like his.
Sara (Debt Camel) says
I understand that the OR decided they were not interested in this old pension provided her husband did not draw any money from it before he was discharged.
All these cases are very individual – it you have a case a bit like this, do talk to your OR as soon as possible.
Jim says
Went br in 2011 and sold house by way of power off attorney
But there has been a problem with the sale contract so house might come back to me and the official receiver has shown a benificial interest as house price has doubled wondering what creditors would be paid as it’s been ten years also there a shortfall from another property is this written of in section 382 after 3 years
Sara (Debt Camel) says
I think you need to talk through the whole situation in detail with a debt adviser. I suggest you phone National Debtline on 0808 808 4000.
Much2Broke says
Hi guys
I need a quick bit of advice. I declared myself bankrupt in 2009 and as my home was in negative equity I was allowed to remain in it. The problem is now that I am on an interest only mortgage that will soon be coming to the end of the term and need to sell my property to be able to pay it off the balance. I know that a bankruptcy restriction has placed in the title register that prevents me from selling. So what I’m really trying to find out is what my options are if I can’t stay in the property and I can’t sell it.
Thanks.
Weatherman says
Hi there
If you go bankrupt but are in negative equity, the situation should be reviewed 2 years and 3 months after the bankruptcy order is made. If at that point the value of your share of the property after sale fees would be under £1,000, the property is normally transferred back to you (without restrictions).
So start by checking whether you still have any restrictions on selling the property – contact the Official Receiver to ask.
And what’s the situation now? Are you still in negative equity, or if you could sell the property would it clear the mortgage?
Janis says
Hello Sara,
I have a quick question for you.
Me and my wife went bankruptcy in September 2020.
We had shared ownership mortgage in place and secured loan against property.
The title of ownership has been passed to trustee.
But recently we had a letter from trustee that she is not interested in property due to lack of equity and she will remove her interest in property.
My question is:
If we will pay off secured loan in next 2 years, does trustee can claim interest in property due to rised equity?
I hope to hear from you soon.
Thank you very much.
Regards
Janis
Sara (Debt Camel) says
If the Trustee says they have no further interest in the property they are not going to change their mind. If you feel the letter is unclear, I suggest you ask the Trustee to clarify this.
Paul says
I am currently in over £70k of debt and have contacted stepchange to assist me with what to do next. They have suggested token payments for now until I decide on the route I want to take, either iva or bankrupt. My TV has just broken and I have the funds to buy one on a electrical store account but would cost me between 600 to 700. I see the purchase as a necessity but also am worried that I may get in trouble for doing so.
What advice would you give ?
Thanks
Sara (Debt Camel) says
Do you have assets to protect – is there a reason you are considering an IVA rather than bankruptcy?
How much do StepChange think you would pay per month in an IVA?
Kyle says
During a bankruptcy order, if I am awarded the mobility supplement to my War Disability Pension can it be used to get a car or will they take the extra income for an IPA?
Sara (Debt Camel) says
Have you already gone bankrupt or are you considering it?
Kyle says
Considering it, but very likely.
Sara (Debt Camel) says
First let me say how sorry I am that a veteran is in this situation.
I haven’t come across this situation before. In general disability payments are not taken for an IPA as you can claim an associated expense – in your case getting a car.
But it would be sensible to get that confirmed. And everyone should take proper debt advice before bankruptcy, not because bankruptcy is especially awful – it may well be the best option for you and it is often less trouble than people expect – but because it is very hard or impossible to reverse if it isn’t your best choice. So I suggest talking to National Debtline on 0808 808 4000.
If you will have problems getting the bankruptcy fee, do talk to SSAFA – they can sometimes help.
Kyle says
I have been putting off BR waiting for my assessment for WDP to be increased to include Mobility supplement. I will loose my car (on HP) and will be unable to replace it so am reliant on getting the mobility supplement. I never tried to claim it previously as didn’t require it as I could fund my own car, until my business failed last year and unfortunately some business debts were guaranteed by myself and passed to me. This is the reason for going BR. The stress of it all and currently trying to manage all my creditors is affecting my mental health and I worry if I postpone BR any longer I may fall too ill to work. I am the only income provider as my wife has severe ME and I have a 15 year old daughter with ASD, both rely on me not only to provide but for care too. My re-assessment is simply in queue and will be dealt with on first come first served basis and they cannot put a timescale on it, it could be weeks it could be months!! I am just concerned that if I go BR now then a month down the line I get the mobility supplement the OR may want that payment to be available to an IPA rather than me being able to get a car with it on the Motability scheme. My father in-law has kindly offered to insure me on his car and use as needed in the interim.
Sara (Debt Camel) says
That is very helpful of your father in law.
Can I suggest you talk to National Debtline for bankruptcy advice and ask them about this? Getting the mobilty supplement may not be a problem at all, I am just saying I have not come across a case like this.
D j Cooke says
Hello. I have been declared bankrupt and received a call from the or who then pencilled me in for another phone call to which he seemed satisfied. He also emailed me and at the end wrote send me this and hopefully you can start to move on from this. I’ve checked my application and can see they have written to my creditor stating unlikely no money will be made to them
Judging from the above and I know they can contact me anytime would you say from your experiences this could be the end of communication with the or I obviously know if my circumstance change I will contact them. Only asking as I suffer from nerves and hopefully can try move on. My application was accepted nearly a month ago
Sara (Debt Camel) says
I guess you may be worried about having to make monthly payments?
The fact they have told a creditor they are unlikely to get anything doesn’t really help you be sure, as the OR would take their own fees – several thousand pounds – out first from any payments you make.
But it doesn’t sound as though the OR is going to be back in touch again, so I suggest you try to relax. It is common for people to never hear any more from this point.