What Katie Price’s case can teach us about bankruptcy

Former glamour model Katie Price once had a net worth in the millions, but has faced huge financial challenges in the last few years.

In November 2019, she was declared bankrupt after failing to meet the terms of an individual voluntary arrangement - a debt solution that lets you repay part of your debt and have the rest written off. 

And then in March 2024, the star faced a second bankruptcy, largely because of a six-figure unpaid tax debt, encompassing income tax, VAT, surcharges and interest from self-assessments.

But now she’s been discharged from both bankruptcies, which means she’s no longer legally bound by the restrictions of bankruptcy. 

If you’re not familiar with all the terminology relating to bankruptcy, this might all seem a bit complicated.

So we thought we’d break down some key terms, using Katie’s recent experiences to bring it to life.

What is bankruptcy?

If a person is declared bankrupt, it means they can’t pay their debts back in full.

You might be able to declare yourself bankrupt if:

• you can’t afford to pay back what you owe
• your possessions are worth less than the amount you owe

Bankruptcy involves selling your assets and sharing the money among your creditors. 

It releases you from most of your debts, usually after a year, and if you go bankrupt, most of your creditors won’t be able to chase payments or take you to court.

But it will impact your credit rating for six years.

And if you own your home, you may have to sell it to help cover what you owe.

Read our guide to bankruptcy to find out more.

What does ‘discharged from bankruptcy’ mean?

If someone is declared bankrupt, their finances are taken over by a trustee - a professional who manages the process. 

But that won’t last forever, and after about 12 months, the bankrupt person will be discharged.

That can mean they’re no longer personally responsible for most of their debts and able to start afresh.

However, this isn’t always the case.

If the official receiver (OR) - the person overseeing the bankruptcy - decides the individual can afford to make payments, they might set up an income payment agreement (IPA) or income payment order (IPO). 

And in some situations, the bankrupt person has to make payments toward their debts for up to three years. 

For Katie Price, this means she is no longer under bankruptcy restrictions and has more control over her finances again.

But some debts, such as court fines, might still need to be paid.

Who is a trustee in bankruptcy?

A trustee in bankruptcy is a person or organisation that manages the bankrupt person’s assets and finances during the bankruptcy process. 

Their job is to make sure debts are repaid as much as possible and to oversee the bankruptcy period.

In Katie’s case, she had to cooperate with her trustee, providing information and attending interviews to make sure everything was handled correctly. 

Her solicitor even mentioned that she had been “fully compliant”, meaning she worked with her trustee as required.

What is a suspension of discharge?

Most bankruptcies last about a year.

But if a person hasn’t fully cooperated with the process, tried to hide assets or not given the required information, the court might decide to suspend discharge.

That means the person stays under the restrictions of bankruptcy. 

At one point, there were discussions about suspending Katie Price’s second bankruptcy discharge.

But in the end, she was able to complete the process and move forward.

What happens now?

Now that Katie Price has been discharged from both bankruptcies, she can start rebuilding her financial life.

“I’m so happy,” she told the Sun.

“I can finally move on and put these bankruptcies behind me and now only focus on the positive.”

What debts can be included in bankruptcy?

Most debts can be written off in bankruptcy, such as:

• credit cards
• buy now pay later
• store cards
• overdrafts
• personal loans
• lines of credit

But there are some important exceptions, such as:

• mortgages (if you want to keep the house)
• criminal fines
• child maintenance arrears

If you’re struggling to repay what you owe, get in touch with us for debt advice and we can discuss all the different options to you, such as:

• setting a household budget
• finding out what benefits you’re eligible for
• debt solutions