Bankruptcy

What are the advantages of going bankrupt?

once the bankruptcy order is over you can make a fresh start - in many cases this can be after a year.
the pressure is taken off you because you don’t have to deal with your creditors
you're allowed to keep certain things, like household goods and a reasonable amount to live on
creditors have to stop most types of court action to get their money back following a bankruptcy order
the money you owe can usually be written off

What are the disadvantages of going bankrupt?

to apply to go bankrupt will cost you £680.
if your income is high enough, you will be asked to make payments towards your debts for 3 years
it will be more difficult to take out credit while you are in bankruptcy and your credit rating will be affected for 6 years
if you own your home, it might have to be sold (but you may be able to apply to your local authority for re-housing)
some of your possessions might have to be sold, for example, your car and any luxury items you own
if you are, or are about to be, the right age to get your pension savings, these might be taken
some professions do not let people who have been made bankrupt carry on working
if you own a business it might be closed down and the assets sold off
going bankrupt can affect your immigration status
your bankruptcy will be published publicly (although if you’re worried you or your family maybe the victims of violence, you can ask that your details aren’t given out)

What debts can be included in bankruptcy?

Most debts that you have when a bankruptcy order is made will be covered by your bankruptcy. This means they will automatically be written off at the end of the bankruptcy period.

Debts that are not automatically written off

magistrates court fines
any payments a court has ordered you to make under a confiscation order, for example, for drug trafficking
maintenance payments and child support payments, including any lump sum orders and costs that have arisen from family proceedings, although you may be able to ask the court to order that you don't have to pay this debt
student loans
secured loans and other secured debts, such as debts secured with a charging order
debts you owe because of the personal injury or death of another person, although you may be able to ask the court to order that you don't have to pay this debt
social fund loans
some benefits and tax credits overpayments.

Is your mortgage covered by bankruptcy?

Bankruptcy won't stop your mortgage lender from taking steps to repossess your home if you're behind on your mortgage. However, if your home is repossessed and sold, but doesn't raise enough money to pay off your outstanding mortgage or any other debt secured on it, the remaining debt will no longer be secured. This means you will be released from it at the end of your bankruptcy. You will also be released from it even if your home is sold at any time after your bankruptcy has ended.

Debts taken out fraudulently

If you took out any of your debts by fraud, your creditor cannot chase you to pay while you are in bankruptcy, but they will not be written off at the end of the bankruptcy period. This means you will still be liable for paying debts you obtained by fraud after you have been discharged from bankruptcy.

Debts in joint names

If you owe debts jointly with someone else, you can include these in your bankruptcy. However, the creditor would then be able to chase the other person for the whole amount owed. They can do this whether the person is working or not.

You and the other person can each apply for bankruptcy individually, which would cover the joint debt. You will each need to pay a fee and a deposit separately. You cannot jointly apply for bankruptcy.

Business debts

If you have business debts that were taken out in a partnership, you can make a joint application for bankruptcy as long as all the partners agree. If you are thinking about doing this, you should take specialist advice.

What happens at the end of bankruptcy?

Your bankruptcy will normally end after a year. The Official Receiver will tell you when it is over. Most debts that have not been paid will be written off although some debts like court fines and student loans can never be written off.

Even when you’re no longer bankrupt, you could have a bankruptcy restriction order made against you. This can last up to 15 years and will restrict your financial affairs. This order could be made if, for example, you do not co-operate with the Official Receiver, or you take on debts knowing that you won’t be able to pay them back.