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What is Bankruptcy?

Everyone’s heard about Bankruptcy. Bankruptcy is a legal procedure available if you’re unable to manage your debts. You can apply for Bankruptcy online, or alternatively one or more of your creditors (the people you owe money to) can apply to the Court for a Bankruptcy Order against you.

Bankrupt is a serious matter, but it may be the fastest way to find a lasting solution to your debt problems.

How it works

You have to pay a fee to apply for bankruptcy, then a government ‘Adjudicator’ decides if you meet the conditions.

If you do meet the conditions, you will be interviewed by the Insolvency Service (part of the government) and a “Trustee in Bankruptcy” will be appointed to handle your Bankruptcy.

You need to be aware that any available assets will be sold to help pay to pay off your creditors. This can include cars or vans too unless they are essential for you to continue your trade or employment.

You’ll usually be able to keep ordinary household items and any tools, books and other equipment you need to continue your trade, although you may be asked to obtain cheaper replacements to any essential vehicle or items etc which are deemed to have ‘excess value’.

Benefits of Bankruptcy

Debt-free in 12 months

All the debts that are included in your Bankruptcy are basically written off when you’re ‘discharged’ from Bankruptcy, which is usually within a year.

Protection from creditors

You don’t have to contact your creditors and they’re not allowed to contact you – the Trustee in Bankruptcy deals with that for you.

A fresh start

Bankruptcy lets you put your debts behind you, giving you the space to regain control of your finances.


You’ll get no more charges or interest added to the debts that are included in your Bankruptcy once it’s in place (unless there is enough money left over from selling your assets to pay it).

You don’t lose everything

You’ll usually be able to keep ordinary household items and any tools, books and other equipment you need to continue your trade, although you may be asked to obtain cheaper replacements to any essential vehicle or items etc which are deemed to have ‘excess value’.

Disadvantages of Bankruptcy

Bankruptcy has its downsides, which sometimes can be considerable. You need to understand all the drawbacks so that you can make an informed decision about whether it’s right for you and your situation.

Your home

You might have to sell your home even if you are only a part owner. Visit https://www.gov.uk/bankruptcy/your-home for more information.

Your credit rating

Bankruptcy has a negative impact on your credit rating. And like all things which impact your credit rating, Bankruptcy stays on your credit file for 6 years making it difficult to get credit.

You’ll also have an automatic credit limit of £500 while in Bankruptcy, above which you must disclose your bankruptcy status when applying for any further credit.

Your other debts

Bankruptcy deals with your unsecured debts only, and certain types of debt are also not included. These include student loans, fines that’ve been issued by a court, child maintenance and overpayments of benefits or tax credits arising from fraudulent claims.  For secured debts (such as your mortgage or hire purchase agreement) any shortfall incurred if the security is sold could be included in the Bankruptcy.

Your payments

Your Trustee in Bankruptcy can ask you to make monthly payments from your income for up to three years.

Your public information

When you enter Bankruptcy, your details go onto a public record, called the Individual Insolvency Register. Occasionally it can be advertised in your local paper or the London Gazette if the Trustee in Bankruptcy considers it necessary.

Your application fee

There’s a fee of £680 to apply for Bankruptcy.  This can be paid by instalments however your application won’t be processed until the fee is paid in full.  Assistance for some of this cost may be available from local charities in cases of hardship.

Your employment

During your Bankruptcy, you can’t be a director of a limited company without the permission of the Court and it can be difficult to continue business as a Sole Trader, for example, due to restrictions on obtaining credit.

Bankruptcy can impact other types of employment and may stop you from going into some professions.

Your citizenship

If you’re currently going through an immigration process or applying for citizenship, or sponsoring someone else to do so, the chances are Bankruptcy will have an impact on these.

Your finances

The Trustee in Bankruptcy can investigate your financial history and conduct during the Bankruptcy. They’ll look for wrongdoing and for any transactions that could be challenged. They do this to recover more money for your creditors and to help the Insolvency Service to uncover financial misconduct.

Whilst these outcomes are rare, it’s important to co-operate with the Trustee in Bankruptcy. Failure to do so could result in your Bankruptcy being extended and can even be a criminal offence.

We don’t provide services relating to applying for a Bankruptcy.  However, when you speak to us, we will make sure you are aware of it as an option for you to consider.

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