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What is bankruptcy?

Bankruptcy is a formal insolvency route for individuals with debts that they cannot pay. Bankruptcy can have serious financial implications so is often the last resort and is usually applied for when no meaningful alternative can be offered to creditors.

There are two routes to bankruptcy.

Voluntary bankruptcy

If your debts are bigger than your income and you are not meeting repayments then you may be able to apply for bankruptcy yourself. You can apply online, after which you’ll usually get an email or letter from the adjudicator within 28 days of submitting your application to say if you’ve been made bankrupt.

This can take longer if the adjustor needs to ask more questions about your application. They’ll then issue a bankruptcy order.

Involuntary bankruptcy

If you owe at least £5,000 to a creditor and cannot meet the repayments then that creditor may apply to declare you bankrupt. A legal process is started and a bankruptcy order may be issued that you have to comply with.

Advantages of bankruptcy

  • The debts included in your bankruptcy will be written off once you have been discharged, which is usually after 12 months
  • No further legal action can be taken against you
  • You will receive no further contact from your creditors
  • You are allowed to keep basic possessions and the tools of your trade if you are self-employed
  • You can apply online to make yourself bankrupt
  • You can pay the bankruptcy fee in instalments over a number of months

Disadvantages of bankruptcy

  • Even though you can make payments of the bankruptcy fee in instalments, the Order can’t be made until it is paid in full which means creditors can still chase you for payment in the meantime
  • You cannot act as a Director of a Limited Company whilst bankrupt and it may affect the terms of your employment depending on your job, it’s always best to check your contract to see if it will be impacted before you do anything
  • Bankruptcy will remain on your credit file for six years
  • All of your assets will form part of the bankruptcy estate and depending on the value of them and the amount of equity in them, the Official Receiver may instruct that these be sold. This includes your house and vehicle if you own one
  • If you have a disposable income, assessed based on the amount left over each month after paying reasonable expenses, you may be required to make payment for 3 years under an Income Payments Agreement, or Income Payments Order. The Official Receiver will decide the amount that you will have to pay each month

Fees and Charges

If you petition for your own bankruptcy, known as voluntary bankruptcy, the cost is currently £680 in England and Wales (£550 for the bankruptcy deposit and £130 for the adjudicator fee). This can be paid in instalments but must be paid in full before the application can be considered.

In Northern Ireland the cost to petition for your own bankruptcy is £669 (£525 for the bankruptcy deposit, £125 for the Court fee and £7 for the solicitors fee).

Help and Advice

If you’re considering bankruptcy as a solution to your debts, complete our online form today and see if you qualify and find out how much debt you could write off.