A Guide to Bankruptcy in England, Wales and N.Ireland

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.

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.

• after bankruptcy will you be able to get a mortgage?

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.