Bankruptcy
What Is Bankruptcy?
Bankruptcy is a formal insolvency process in England and Wales that may be available to individuals who are unable to repay their debts. It is a legal status granted by the court.
If you are declared bankrupt, your unsecured debts may be written off at the end of the process, subject to certain conditions. Bankruptcy usually lasts for 12 months, although its impact on your credit file will typically remain for six years.
Bankruptcy can be applied for directly through the official UK Government website. In some circumstances, a creditor may apply to make you bankrupt if you owe them £5,000 or more. This is known as a bankruptcy petition.
Important Considerations
Bankruptcy can affect your credit rating for six years.
You may be required to make payments if you have surplus income.
Certain assets, including property or high-value items, may be at risk.
Some professions restrict individuals who are declared bankrupt.
Bankruptcy may not be suitable for everyone.
An assessment of your income, expenditure, assets, and overall financial position is required before determining whether bankruptcy is appropriate. This assessment must be carried out by a regulated debt advice provider.
Credit Counsellor Limited is not authorised or regulated by the Financial Conduct Authority. We do not provide debt advice or recommend debt solutions. We provide general information and may connect you with an FCA-authorised firm who can review your individual circumstances and provide regulated advice.
You should always check that any firm providing debt advice is authorised by the Financial Conduct Authority.
For free and independent debt advice, you may also wish to contact MoneyHelper or Citizens Advice.
Click “DEBT HELP” to start your journey, one of our friendly team will then be in touch to give you all the information you need to deal with your enquiry and refer you to one of our regulated associate experts.
Advantages and Disadvantages of Bankruptcy
Advantages
- It is a way of getting your debts written off.
- Your creditors will no longer be allowed to continue contacting you directly.
- The Bankruptcy itself lasts one year, after which you will be debt free.
- You may be able to keep your house if there’s no equity in it, as well as your car if it is worth less than £1,000.
- You’ll still be allowed a reasonable amount of money to live off.
Disadvantages
- You are likely to lose your home if there is available equity in it, along with any other valuable assets.
- There is still a £680 fee to pay to apply for Bankruptcy and your application will not be considered until this is paid.
- You could be at risk of losing your job and may struggle to get work in the future.
- Your details will be published on the public insolvency register.
- Your credit rating will be negatively affected for 6 years following the Bankruptcy.
Bankruptcy vs Individual Voluntary Arrangement (IVA)
Bankruptcy and an Individual Voluntary Arrangement (IVA) are both formal insolvency procedures available in England and Wales. They operate differently and have different implications.
Key differences include:
An IVA is a legally binding agreement where affordable payments are usually made over a fixed period (typically around five years).
Bankruptcy is a court-based insolvency process that normally lasts 12 months. However, if you have surplus income, you may be required to make payments for up to three years under an Income Payment Agreement or Order.
In an IVA, arrangements regarding property and assets are agreed within the proposal.
In bankruptcy, certain assets — including property or high-value items — may be sold for the benefit of creditors.
Both options can significantly affect your credit file for six years and may have long-term financial consequences. Approval of an IVA depends on creditor agreement. Bankruptcy eligibility and consequences depend on individual circumstances.
Bankruptcy vs Debt Management Plan (DMP)
Bankruptcy and a Debt Management Plan (DMP) are structured very differently.
Key differences include:
Bankruptcy is a formal insolvency process administered through the court.
A DMP is an informal arrangement with creditors to repay debts over time.
Most unsecured debts may be included in bankruptcy.
A DMP generally covers non-priority unsecured debts and requires ongoing monthly payments.
Bankruptcy may involve asset implications and legal restrictions.
A DMP does not carry the same legal status as bankruptcy, and creditors are not legally bound to freeze interest or charges.
Each option carries risks and implications depending on income, assets, and total debt level.
Bankruptcy vs Debt Relief Order (DRO)
A Debt Relief Order (DRO) and bankruptcy are both formal insolvency procedures but apply in different circumstances.
Key differences include:
A DRO is generally intended for individuals with low income, limited assets, and debts below a specified threshold (currently £30,000 in England and Wales).
Bankruptcy does not have the same upper debt limit.
Application fees differ (at the time of writing, bankruptcy carries a higher fee than a DRO).
Both options have an impact on credit files for six years.
Eligibility criteria apply to both processes and must be assessed based on individual circumstances.
Important Information
Credit Counsellor Limited is not authorised or regulated by the Financial Conduct Authority. We do not provide debt advice or recommend one option over another.
We provide general information only and may refer you to an FCA-authorised debt advice firm who can assess your individual circumstances and provide regulated advice.
Formal insolvency solutions carry risks, including potential impact on your credit file, assets, employment, and future borrowing ability. You should always seek regulated advice before making any decision.
For free and independent debt advice, you may also wish to contact MoneyHelper or Citizens Advice.
Click "GET IN TOUCH" to start your journey, one of our friendly team will then be in touch to give you all the information you need to deal with your enquiry and refer you to one of our regulated associate experts.
