Important: The Insolvency Service describe Bankruptcy as a last resort. Bankruptcy should only be considered after you’ve taken professional advice and explored all other options.
What happens if I decide to go bankrupt?
Applications for bankruptcy are made online. This is done via the Insolvency Service and does not involve a Court hearing nor a Judge.
An adjudicator is appointed by the Insolvency Service to decide if you should be made bankrupt. If so, a civil servant called The Official Receiver is instructed to administer the process. They’ll look at your financial and personal circumstances (your debts, assets, income and outgoings) to decide how much, if anything, you can afford to contribute towards the debts.
Discharge after 12 months
Most people are discharged from bankruptcy after 12 months, at which point all included debts are written off. However, although discharged, the administration will continue until the Official Receiver has completed their duties; you are obligated to co-operate with the Official Receiver until their investigations have finished.
If you can afford to, you will be expected to make monthly payments towards the bankruptcy for up to 3 years.
A definite outcome
Once the bankruptcy is complete, you’ll be debt free – this is guaranteed. All included debts are written off.*
You repay only part of what you owe
Once your bankruptcy order is made, all creditors must accept it and accept less than the full amount owed to them.
The Official Receiver will deal with all creditor correspondence and any payments due to them. Creditors can’t take legal action against you.
Less stigma as it becomes more commonplace
Many people per week are made bankrupt in England and Wales; and it no longer involves the courts.
*Some debts cannot be included in bankruptcy, such as court fines, child maintenance arrears and secured debts.
While there are benefits to becoming bankrupt, there are also important considerations you must take into account.
Impact on business affairs
Any business you have will almost certainly be closed down.
You may not be, or act as, a company director or be involved in the management of a business without permission from the Official Receiver.
Impact on employment
Bankruptcy can affect your employment. In some jobs, a record of bankruptcy may lead to dismissal, demotion or other issues.
Some professional membership bodies don’t allow undischarged bankrupts to remain members.
Some jobs are not open to bankrupt people at all.
You can’t do any of the following jobs while bankrupt
- Charity trustee;
- Company director;
- Insolvency Practitioner;
- Justice of the Peace;
If you work in the following industries, you should check whether bankruptcy will have any impact on your job:
- Armed forces
- Anything cash handling, for example banking, payroll or security;
- Financial services, for example accountant, mortgage broker, stock broker or financial advisor;
- Law, for example solicitor or legal executive;
- Medicine, for example GP or dentist;
- Property, for example estate agent, letting agent;
- Pub licensee;
You will be committing an offence if you get credit of £500 or more without disclosing that you are bankrupt.
Entering into a Bankruptcy has a negative impact on your credit rating for 6 years, which is how long information is retained by the credit reference agencies.
When applying for a mortgage you may be asked if you have ever been made bankrupt.
Possible extended restrictions
If it is considered that your behaviour has been dishonest; you have acted recklessly and taken out credit knowing you would not be able to pay it back, or you have not co-operated with the Official Receiver, then a bankruptcy restriction order may be placed on you.
This can extend the normal bankruptcy restrictions by up to 15 years.
Restrictions on expenditure
While bankrupt; you are expected to live within reasonable means.
The Official Receiver’s expenditure guidelines can be strict. The following are examples of expenses which are likely to be disallowed (unless there are special circumstances):-
- Gym membership, any sports expenses or club membership
- Private healthcare insurance
- Money for gambling
- Alcohol or cigarettes
- Satellite TV
Loss of assets
You can lose assets of value including your home.
Anything of worth which can easily by sold to raise money to pay into the bankruptcy could be taken from you.
- Household items essential for basic domestic needs – clothes, furniture, TV etc.
- A modest vehicle depending on circumstances.
- Items needed for trade or employment, such as tools and computing equipment.
- Money held in pension funds (other than where you have made what your trustee considers to be “excessive contributions” into a pension).
- Money obtained from a student loan, if a balance of the loan remains payable.