What is Bankruptcy?

The following guide will explain to you the fundamental elements of bankruptcy, what it entails, how to begin the process and how it will affect your day-to-day living.
Bankruptcy is form of insolvency and can either be done on a voluntary basis by an individual in debt or involuntarily by an aggressive creditor to someone who owes them money.

If you have a high level of unsecured debts and are aware that you do not have enough money in order to repay them, or believe that your current income would take years to pay them back, then you might want to consider utilising Bankruptcy as a way to alleviate your difficulties.

After you’ve been formally declared bankrupt, you will no longer be required to interact directly with your creditors, and a representative called the Official Receiver will be assigned to assume control over your cash and assets and deal with your lenders.

After your bankruptcy order has been officially discharged, you will usually be able to move forward in the future without having to worry about repaying the debt included within your bankruptcy, as it tends to be written off after a year from the day that you were made bankrupt by the court. Your lenders will have to cease most kinds of legal action they are currently pursuing against you in order to recover their money after you have been given a bankruptcy order.

There are however, a number of shortfalls to using bankruptcy as a solution to your debt problems. The primary deficiencies include the fact that the procedure costs as much as £700 in court fees and other charges and the reality that you will likely lose your property, assets and other items you own with re-sale value. These will usually be sold-off by your official receiver so that the proceeds can be utilised in order to repay some of your creditors.

It is important to remember that bankruptcy is not the only solution available to you if you endeavour to address your financial difficulties, and it might be poorly suited to your circumstances.

To learn more about the options available to you whilst you are struggling financially, read our ‘alternatives to bankruptcy page’.

The Pro’s of Bankruptcy

Some of the benefits of going bankrupt are:

  • Your creditors will no longer be able to interact with you so you won’t have to be subjected to relentless phone calls and solicitors from your creditors anymore.
  • Under bankruptcy regulations, you are allowed to retain certain items you own, such as ‘living essentials’ and itinerary essential to the day-to-day living of your household.
  • After your bankruptcy order comes to an end, you can move forward without having to worry about the burden of debt. In a number of cases, this can occur after a single year (though you might be required to make regular contributions toward your debt for three years after if your circumstances improve immediately after and you have a sufficient level of disposable income to do so.
  • After a bankruptcy order is decreed, unsecured creditors will usually be required to cease most kinds of court action they are currently utilising to recover the money you owe them (though in certain circumstances the bailiffs might still have the power to seize some of your belongings).

The Con’s of Bankruptcy

Some of the shortfalls of pursuing bankruptcy are:

  • It could cost you as much as £705 in order to acquire the order and formally start bankrupt proceedings. This could rise to an even higher sum if, for example you choose to utilise the services of a solicitor.
  • During the bankruptcy period you will be unable to access any credit facilities.
  • If you are a property holder, then you will likely have it repossessed and sold during the bankruptcy period. If this happens to you, you can make an application to your local authority and ask for them to find you a new social living residence.
  • Does not apply to secured loan debts, such as your mortgage, hire purchases or lease payments.
  • Your most expensive assets will most likely be sold, particularly luxury itinerary under your ownership. This includes your car, stocks, shares and any items you own which are deemed to have re-sale value but do not constitute ‘living essentials’.
  • Certain professions do not allow individuals who have been made bankrupt to continue working in the industry, which could damage both your short term and long term employment prospects.
  • If you are a company owner, then it is probable that the Official Receiver will close it down, sack your workers and sell all of the businesses assets.
  • Bankruptcy can negatively impact your immigration standing.
  • News of your bankruptcy will be publically available as your information will be placed on the Insolvency Register, which individuals can look at on the internet. In certain cases, your bankruptcy may be published in a local paper, though this is only in extreme situations.
  • After your bankruptcy order expires, you may have a new order made against you entitled a bankruptcy restriction order.  Typically, these orders will be made against you in cases where you have failed to comply with the Official Receiver, or you carried on taking out loans during your bankruptcy period when you were fully aware that you had no realistic way of repaying them. These types of orders can run for as long as 15 years, which could make it severely difficult for you to ever recover financially.
  • Fines given to you by the court and outstanding student loan debt will not be included in your bankruptcy and you will be required to repay these even after your order comes to an end.


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