(not Scotland - see "Sequestration")
Bankruptcy works differently depending upon whereabouts in the UK you live. This page has been written only for residents of England and Wales.
Bankruptcy may be the best solution for individuals facing a catastrophic level of debt that they have little or no prospect of repaying within a reasonable period of time. Bankruptcy can also be a suitable option where a lack of assets leads an individual to decide they have little to lose from going bankrupt.
In simple terms the process works in two stages:
Firstly the individual must apply for their own bankruptcy via an online application. An adjudicator will review the application and grant the bankruptcy order if they believe that to be appropriate. Most people are “discharged” from bankruptcy about a year later.
Secondly the individual will need to work with the Official Receiver’s office. This team will take responsibility for your financial affairs and will seek to return money to your creditors where it is possible to do so. This could mean that the individual makes monthly payments where affordable for a fixed period (three years) or the realisation of your assets (for example the sale of a home or of a vehicle of significant value).
The application fee is £680. This can be paid online using a card (in instalments if you wish) or by cash at an RBS bank branch (the full amount has to be paid in one transaction).
There are firms offering to help you with the bankruptcy process in return for a fee. In our opinion these types of fees are not justified unless your case is especially complex. Most people find that they are able to complete the forms themselves and can find the answers to questions they might have by searching online, using debt web-forums, or by getting professional debt advice.
There are a huge number of myths about bankruptcy that cause people to fear the process. In some cases it does not result in the loss of a home, modest vehicles can be kept where they are reasonably required, and necessary domestic items are not going to be removed. However the implications of bankruptcy can be very serious for certain people running businesses, those with equity in their home, and for persons working in certain professions.
A public register of bankruptcies is kept. Your credit rating will be seriously affected by bankruptcy. You will be required to live on a restricted budget during the period of your bankruptcy and for up to two years afterwards (to contribute towards the costs and your debts where it is deemed affordable for you to do so).
You may have to realise the value of certain assets to cover the costs of your bankruptcy and to help repay your creditors. In some circumstances this could involve the sale of such assets.
From 1st October 2015 a creditor can only petition for your bankruptcy if you owe them £5,000 or more.
As with all the other potential solutions to debt, the advantages and disadvantages associated with bankruptcy do vary a lot from person to person depending upon their own circumstances. Please contact our support/advice team if you’d like to discuss whether bankruptcy is the best solution for you.