How does bankruptcy work?
What are the benefits of bankruptcy?
What are the risks of bankruptcy?
- The trustee may sell assets for you. These are things of value like your home or car
- You could be asked to pay monthly amounts for three years. This will only be what the trustee thinks you can afford
- You will find it hard to get credit
- If you live in England or Wales, your bankruptcy is put on the Individual Insolvency Register. If you live in Northern Ireland, your bankruptcy is put on the Bankruptcy Register. It will show on your credit file for six years.
- Your bankruptcy may be extended. This means it could last longer
- It might affect your job
Which debts are included?
While most debts are, some are not. These are things like:
- TV licence missed payments
- Criminal fines
- Social Fund loans
- Student loans
- Damages for personal injury
You will still have to pay these during your bankruptcy.
Bankruptcy and fraudulent debt
Bankruptcy will not write off any debts you got fraudulently. These are things like benefit fraud. The people you owe money to may still get in touch with you about these. You will have to pay back what you owe.
Important information about bankruptcy
- You should know how your assets, home and job could be affected
- Your trustee looks at what you can pay towards your debts. They also look at what you and your family need to spend.. This may be less than is shown on your budget
- They will look at how you manage your finances. You need to be open and honest with them
- If you live in England or Wales you will need to pay a £680 fee. If you live in Northern Ireland you will need to pay a £683 fee. It can be paid in instalments. Help with fees may also be available
- Your might not be able to use your bank account after the bankruptcy order
- Money you have saved in pensions will not be included. This applies to regulated pensions and approved pension schemes. However, any pension money you get as income or a lump sum can be affected
- A 'trustee' manages your case and acts on behalf of your creditors
- You cannot be a director of a company while bankrupt
Conditions of bankruptcy
There are things you cannot do and things you must do in a certain way. These are:
- If you apply to borrow more than £500 you must tell the lender you are bankrupt
- You cannot set up a limited company or be a company director
- You cannot hold public office
- You must not hide items of value
- If you want to run a business, you must ask the trustee
- You must co-operate with the trustee
- If you want to travel to Great Britain or the Republic of Ireland you must get permission from the OR. If you wish to travel to any other country you must apply to the court
- If you have power of attorney for someone: You will need to check this with the trustee
Find out more about restrictions.
Find out more about bankruptcy in Northern Ireland.
Your bankruptcy conditions can be extended
The conditions might be extended for up to 15 years if you:
- Do not co-operate with the trustee
- Have taken out debts before the bankruptcy that you knew you could not pay back
- Have debts from gambling or fraud
- Have run a business dishonestly
- Have given away or sold any goods for less than their value
- Made payments to some creditors but not others. This includes loans from family and friends
- Have previously been bankrupt in the last six years
If the trustee decides you have done any of the above, they can do either of these:
- Ask you to agree to a ‘bankruptcy restriction undertaking’, or
- Apply to the court for a ‘bankruptcy restriction order’
These both extend the conditions of your bankruptcy.
Find out more about restrictions.
Your bankruptcy will be recorded on a public register
Your bankruptcy will be put on the ‘Individual Insolvency Register’ and in The Gazette. Anyone can view this.
This will usually be removed within three months of your bankruptcy ending.
If there is a risk of domestic abuse or personal harm it is possible to apply for only limited information to be given.
Bankruptcy and your assets
The trustee decides what is or is not included in your bankruptcy. We cannot say what assets they might decide to sell.
When you have spoken with your trustee you will know what to do with your assets.
They decide what you need to maintain a reasonable standard of living. You may be allowed to keep essential household goods, for example:
- Tools you need to do your job
- Personal items like your clothing and furniture you need
- Household and electrical goods needed by you and your family
You will be allowed to keep any money in a regulated or approved pension scheme. However, your pension income or payments could be affected.
The trustee will also look at what you have bought and payments you have made. They will check if these are fair and have the power to reverse them.
For example, if you sold your car to a friend for less than its true value, the trustee could take the car off your friend and return their money.
The trustee can decide if you are allowed in your home, even if you:
- Are not named on the mortgage deeds
- Do not directly pay for the mortgage
This is called ‘beneficial interest’ and can be paid into the bankruptcy like any other asset. A court would decide if this applies to you. This can be hard to understand. If you think this might affect you, contact us for advice.
Bankruptcy and your home
Before going bankrupt, you need to let anyone else named on the mortgage know. They will also be affected. You may find it helpful to get legal advice before telling them.
Only your share of any equity in the property will be paid into the bankruptcy. Equity just means the value of the amount of the property you own. Any equity of a joint owner will not be paid into the bankruptcy.
The trustee will let your mortgage lender know that you are bankrupt. There is a chance they may consider repossession. This means the lender could take back your home.
This could happen even if you are up to date with your payments. However, it is more likely if you are behind with your mortgage or secured loan payments.
The trustee could also sell any property you own. From the date your bankruptcy is granted, they have up to three years to deal with the property. They will decide whether to sell based on the amount of equity in your property.
The value of your equity in property will be realised in one of these ways:
- The trustee has the option to sell your property
- The trustee could secure a charging order against your property. If you sell the property in future, the full amount of the charging order plus interest would be repaid
- Once your bankruptcy ends, you or someone else could offer to buy your share of your equity for a price agreed with the trustee
- If you have little or no equity it will be returned to you
If you have a tenancy agreement you should check it. Some have bankruptcy clauses.
They give the landlord the right to:
- End the agreement
- Refuse to renew or continue your tenancy
This means you may risk losing your home.
Your landlord will only be told about your bankruptcy if your rent arrears are included.
Your bankruptcy will show on your credit file for six years and your name will appear on the public register. This can also make it harder to rent in the future.
Bankruptcy and your job
There are some jobs you cannot have when you are bankrupt. These are often jobs where you are in control of other people's money. Things like solicitors and some roles in financial services.
You should find out if bankruptcy puts your job at risk before you apply. You can:
- Check the terms and conditions of your contract
- Speak to your employer, trade union or professional body such as ACAS