What happens when you declare bankruptcy?

Declaring bankruptcy involves your assets being sold and the money shared among your creditors.

During your bankruptcy, your creditors will stop trying to collect the money you owe, and interest charges and legal action will be suspended.

When your bankruptcy ends, usually after 12 months, your outstanding unsecured debt will be written off.

If you’re considering bankruptcy:

Get advice

Make sure bankruptcy is the best option for you before applying by getting free, impartial debt advice.

Options

A debt adviser will talk you through all your options, not just bankruptcy.

Proposal

If bankruptcy is right for you, the debt adviser will be able to help you with your online application.

Set up

If your application is accepted, a bankruptcy order will be made and your creditors will be informed.

If you’ve spoken to a debt adviser and they’ve recommended bankruptcy, the next step is to complete your online application

You need to do this yourself but we’re always happy to offer help and advice

Before you start, it’s a good idea to gather all the information you’ll need, including: 

• who you owe money to
• your assets (belongings that could be sold to go towards your debts) 
• any properties sold in the last five years
• your income and outgoings
• your employment
• details of people who live with you, including dependants

You’ll also be asked about the reasons you’re in financial difficulty.

You won’t be able to submit your bankruptcy application until you’ve paid a fee of £680. 

You can pay this in instalments if you need to, or you may be able to get a grant. 

The fee is made up of:

• £130 adjudicator fee
• £550 deposit 

If your application is rejected, the deposit will be refunded.

Your application will be reviewed by an adjudicator. They have 28 days to approve or reject it. 

They may ask you for more information. If they do, they’ll have an extra 14 days to make a decision.

If approved, your application will be passed onto an official receiver (OR). The OR is an officer of court who manages the early stages of bankruptcy. They’ll check your income and spending. You might have a phone or in-person interview.

If you don’t co-operate with the OR, your bankruptcy might last longer. 

Income payment agreements

If you have disposable income after covering your essential costs each month, you might be asked to pay this money towards your debts. The OR will get you to sign an income payment agreement (IPA) if they want you to do this.

The minimum payment is £20 a month for three years.  

Once you’ve been declared bankrupt, the OR will take over dealing with your debts.

Dealing with creditors

The OR will speak to creditors on your behalf.

They’ll handle all communication and decide how to deal with your debts.  

What happens to your assets

When you become bankrupt, you can keep essential items for daily living, such as:

• clothes
• bedding
• furniture
• white goods
• tools and equipment for your job

The rest of your things may be passed onto the official receiver to sell to pay back your debt. 

If you have a vehicle worth more than £3,250, you will usually be asked to sell or downgrade and you may also need to sell any property you own or release the equity within it. All of this will have been taken into consideration when we recommended bankruptcy.

If you’ve transferred any assets in the last five years or made payments to certain creditors or family members in the last two years, the OR may be able to recover those assets and divide the proceeds between all your creditors.

If you receive any windfalls, for example a lottery win or an inheritance, or if your income increases, you’ll need to tell the official receiver and you’ll usually be expected to use this additional money to pay off some of your debt.

Bank accounts

You’ll need to open a new basic bank account before you submit your bankruptcy application, as any accounts you currently have will be frozen. The OR will decide if the money should be paid towards your debts or released to you to cover necessary living expenses.

While your accounts are frozen:

• payments may be stopped going into or out of your account
• you’ll need to stop using your debit cards, credit cards and cheque book

Joint bank accounts

Accounts you hold with another person will also be frozen. The OR will usually give half the money to the other account holder. Proof will be needed if more than half the money belongs to that person. 

Bankruptcy restrictions 

During bankruptcy, you can’t do certain things. These restrictions include:  

• applying for credit of more than £500
• acting as a company director unless you get court approval

Public record

Details of your bankruptcy will be publicly listed in the individual insolvency register and the Gazette.

Declaring bankruptcy is a big step and there are certain things you need to bear in mind before going ahead. 

Credit rating

Your credit rating will be seriously affected by bankruptcy.

The fact you’ve been declared bankrupt will be recorded on your credit report for six years. And even after six years, you might still be asked if you’ve been bankrupt in the past on some credit or job applications. 

Any bankruptcy restrictions orders will stay on your credit report for as long as they remain in place. 

Employment

Declaring bankruptcy may affect your job.

• You can’t be a director of a limited company.
• You might lose your job if you're in the armed forces or police.
• You might lose professional licences you need to practice e.g. solicitors and accountants.
• Some job contracts include clauses about bankruptcy that may result in you being dismissed or rule out a promotion.

If you work in finance or handle cash, it’s wise to check your employment terms before applying for bankruptcy. 

Nil tax code

When you become bankrupt, you’ll get a ‘nil tax code’. This means you won’t pay tax on any wages until the end of the financial year. HMRC will then claim the tax from the OR. 

This is so you’ll have more money to pay into your IPA. Don’t worry, your employer won’t be told about your bankruptcy.