How does it work?

Available to those living in England, Wales and Northern Ireland, bankruptcy is a formal insolvency process whereby your debts are written off. In Scotland, it’s known as sequestration.

You can choose to apply for bankruptcy yourself. Or, in some cases, one or more of the companies you’re in debt to can petition to make you bankrupt.

In order for this to happen, you must owe a minimum of £5,000.

Applying for bankruptcy is done through the Insolvency Service in England and Wales and the High Court in Northern Ireland. If you do apply, you’ll need to pay the fee of £680.

You can put all your unsecured debts into a bankruptcy, including mortgages. And you’ll have to surrender your home to the agreement.

Once your application has been approved, the companies you owe money to are no longer allowed to contact you or take further legal action to get the debt repaid.

Being declared bankrupt usually involves selling things you own that are of high value, such as your car or house, for money to repay your debts.

You may also have to make a monthly payment towards your debt if you earn enough.

Bankruptcies typically last for a year, and at the end, any remaining debt you have is written off.

However, it’s put on a public record and can affect your career opportunities – for example, you won’t be able to direct a company.

Is it right for me?

Bankruptcy should always be a last resort for dealing with your debt as it can have a drastic impact on your life.

If you’re thinking about applying for bankruptcy, you should consider the following:

• Is your total debt level more than the value of all your possessions?
• Are you unable to repay your debts in a reasonable time?
• Do you have little or no spare income that could be used in a monthly payment scheme, such as an IVA?
• Are your circumstances unlikely to change any time soon?

Advantages

• Is your total debt level more than the value of all your possessions?
• Are you unable to repay your debts in a reasonable time?
• Do you have little or no spare income that could be used in a monthly payment scheme, such as an IVA?
• Are your circumstances unlikely to change any time soon?

Disadvantages

• Your credit rating will be negatively affected for six years after your bankruptcy.
• It will be put on a public record.
• Your home is likely to be sold if it has a lot of equity in it.
• Cars over the value of £1,000 are usually sold, however, if a friend or relative pays the difference then it’s possible to keep it.
• Some jobs are affected by bankruptcy, for example, you won’t be able to work as a company director or be involved with the management of a limited company while you’re bankrupt. You can also no longer practice as a solicitor, accountant or in other financial services.
• It comes with a cost – you will need to pay £680 to go bankrupt.
• Bankruptcy can also affect a person’s application to become a British citizen and their status as a person of independent means.Your credit rating will be negatively affected for six years after your bankruptcy.