Bankruptcy

Bankruptcy is one solution to serious debt problems. It might be right for you if you can’t afford to pay your debts and have no prospect of doing so in the near future.

Going bankrupt has serious consequences on what you own, your income, your credit rating and, in some cases, your employment. You should always get professional advice before you start the bankruptcy process.

Alternatives to bankruptcy

If you have debt that you can no longer manage, you should also consider if solutions other than bankruptcy would be better for you.

Look at our page on alternatives to bankruptcy and always get help if you are faced with serious debt problems.

Becoming bankrupt

Applying for your own bankruptcy

If you cannot pay your debts and you have unsecured debts of £750 or more, you can apply for your own bankruptcy, this is known as a ‘debtor petition’.

  • You can apply online here.
  • You will need to pay a fee of £680 which you will not get back.

If you apply for your own bankruptcy using the online service, a bankruptcy order will be made by the Insolvency Service. The decision whether to grant the order should be made within 28 days.

A creditor applying for your bankruptcy

Alternatively, one or more of the people you owe money to (known as your ‘creditors’) can apply for your bankruptcy if you owe them £5,000 or more. This is known as a ‘creditor petition’. If you are made bankrupt by your creditor, a bankruptcy order will be made by the court.

A creditor can only apply for your bankruptcy if:

  • they have sent you a ‘statutory demand’ (see below), or
  • obtained a county court judgment (CCJ) against you and unsuccessfully attempted to enforce it.

Once bankrupt, your case will be handled by a trustee. This could be an official receiver or an insolvency practitioner. You will probably have to go to an interview with the trustee which may be in person or by phone.

The trustee will make the decision of how your assets are distributed, and whether any income payment orders should be made.

Bankruptcy usually lasts for a maximum of a year. When you are freed from your bankruptcy, you can no longer be pursued for your debts that you owed at the time you were made bankrupt.

In certain cases, the trustee can ask for the bankruptcy to be extended or for a bankruptcy restriction order to be made. A restriction order might be made if you have:

  • not cooperated
  • behaved fraudulently or dishonestly, for example, given false details to obtain credit
  • given away assets or sold them for less than their value
  • neglected your business so that your debts have increased.

Read more from Gov.uk about bankruptcy.

Effects of bankruptcy

When you are made bankrupt, your possessions and financial assets such as life insurance policies may be sold to pay your creditors. If you are a homeowner, your home could be sold, even if you own it jointly with someone else.

When you are bankrupt there are several restrictions on how you conduct your financial affairs, including your ability to borrow money or run a business.

Bankruptcy makes it difficult to get credit or loans in the future.

Bankruptcy orders are usually in place for one year. When you are freed from bankruptcy or ‘discharged’ most of your debts are written off.

Debts that are not written off include:

  • student loans
  • debts you incur after the bankruptcy order was made
  • family liability such as maintenance orders and child support arrears
  • court fines
  • debts arising from fraud
  • mortgage payments.

If you receive a statutory demand

A statutory demand is a document from one or more of your creditors asking for their debts to be repaid and has to be served before bankruptcy proceedings can begin. Many creditors issue a statutory demand as a way of trying to get you to deal with your debts.

If you receive a statutory demand for payment, you must act within 21 days to ensure that the creditor does not issue bankruptcy proceedings. You can prevent bankruptcy proceedings if you repay the debt in full or reduce the debt to below £750.

You may also be able to prevent your creditor taking bankruptcy proceedings if you:

  • offer to repay the debt in instalments
  • try to settle the debt by negotiating to pay less than you owe
  • set up an individual voluntary arrangement (IVA)
  • apply for an administration order
  • offer your creditor a voluntary charge on your property (if you have one) – but always seek advice before considering this.

If you dispute the claims made under the statutory demand, you can apply to the court to have it set aside. If this is successful it prevents your creditor applying for you to be made bankrupt.

Homeowners and bankruptcy

Your home could be sold to help pay your debts.

The sale could be delayed until after the first year of bankruptcy if you have a spouse, civil partner or children living with you, so that other housing can be found.

If your home cannot be sold, your trustee may obtain a legal charge over your share in it instead. When you sell your home, the value of your share in the property is paid to your trustee, including any increase in its value.

If your trustee doesn’t sell your home, obtain a legal charge over it, or come to an arrangement with you, usually within 3 years, it may be returned to you.

Where to get help

For more information about managing your debt, contact:

You can also use the Gov.UK website which has lots of helpful information and guides prepared by the Insolvency Service.

Phone an adviser

If you have a housing problem, call our expert housing advice helpline
0345 075 5005

Email an adviser

If you have a non-urgent problem and would like to speak to an advisor
email us

This page was last updated on: July 10, 2018

Shelter Cymru acknowledges the support of Shelter in allowing us to adapt their content. The information contained on this site is updated and maintained by Shelter Cymru and only gives general guidance on the law in Wales. It should not be regarded or relied upon as a complete or authoritative statement of the law.