Debt solutions · 6 min read
Bankruptcy explained: what really happens when you go bankrupt
Bankruptcy is often seen as a last resort, and it is surrounded by myths. For some people, though, it offers a fresh start when debts are simply unmanageable. Here is what it involves.
How bankruptcy works
Most people apply for their own bankruptcy online through the Insolvency Service. A creditor can also apply to make you bankrupt if you owe them at least £5,000. Once you are made bankrupt, an Official Receiver or trustee takes control of your assets and deals with your creditors.
How long does it last?
Bankruptcy usually ends (you are 'discharged') after 12 months. However, if you have spare income, you may be asked to make payments for up to three years under an Income Payments Arrangement.
What happens to my home?
If you own your home and there is equity in it, it may be sold to repay creditors, although a partner or family member may be able to buy your share. If you rent, bankruptcy does not automatically end your tenancy, but rent arrears are a risk to look at carefully.
What can I keep?
You can usually keep essential household items, tools you need for work, and a modest vehicle if you need it. Valuable items and luxury vehicles may be sold.
Other effects to be aware of
- It stays on your credit file for six years
- Some jobs and professional roles have restrictions
- You cannot be a company director without court permission
- You must tell lenders you are bankrupt if borrowing more than £500
Alternatives to bankruptcy
Before choosing bankruptcy, compare it with an IVA or a Debt Relief Order. Our friendly UK team can help you understand what might fit.
This article is general information only and may not reflect your circumstances. Rules and limits can change, so always check the details with an authorised provider before making a decision.
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