What Is Bankruptcy?
Bankruptcy is a formal legal insolvency procedure in England and Wales, governed by the Insolvency Act 1986. It is designed as a last resort for people who have no realistic prospect of repaying their debts and for whom other solutions (DMP, IVA, DRO) are not appropriate.
When you are made bankrupt, an Official Receiver (OR) — an officer of the court — is appointed to investigate your financial affairs, take control of your assets, and distribute any realisable assets to your creditors. In exchange, you are discharged from most qualifying unsecured debts, usually after 12 months.
Bankruptcy provides a fresh start, but it comes with significant consequences for assets, employment, credit, and certain professional activities.
How to Apply for Bankruptcy in the UK
- Check eligibility: You can apply for your own bankruptcy regardless of your debt level. You do not need a minimum debt amount.
- Apply online: Complete the online application at gov.uk/apply-for-bankruptcy through the Insolvency Service.
- Pay the £680 fee: The fee comprises a £130 adjudicator fee and a £550 Official Receiver deposit. You can pay in instalments online before submitting.
- Fee waiver: If you receive qualifying means-tested benefits (Universal Credit, Income Support, Housing Benefit, ESA, etc.), you can apply to have the fee waived.
- Application reviewed: An Adjudicator reviews your application, usually within 2 working days. They may request additional information.
- Bankruptcy order made: If approved, a bankruptcy order is made and the Official Receiver takes over. You will be contacted by the OR's office.
- Interview with Official Receiver: You will be required to complete a questionnaire and may have a telephone interview with the OR about your finances.
Duration: How Long Does Bankruptcy Last?
There are several different time periods relevant to bankruptcy:
- Discharge from debts: 12 months — In most cases, you are automatically discharged from qualifying debts 12 months after the bankruptcy order. This is the key milestone that gives you a fresh start.
- Income Payments Agreement (IPA): Up to 3 years — If you have surplus income, you may need to make monthly contributions for up to 3 years from the bankruptcy order — even after discharge. This is separate from discharge.
- Credit file: 6 years — Bankruptcy appears on your credit file for 6 years from the date of the order.
- Insolvency Register: 3 months after discharge — Your entry on the public Insolvency Register is removed approximately 3 months after discharge.
- Bankruptcy Restrictions Order/Undertaking: 2–15 years — If the OR finds misconduct (e.g. incurring debt you knew you could not repay, gambling, fraudulent behaviour), they can apply for a Bankruptcy Restrictions Order (BRO) extending restrictions for up to 15 years.
What Happens to Your Assets?
The Official Receiver reviews all your assets. Some are protected; others can be sold to repay creditors.
At Risk
- Your home (if equity exists)
- Savings and investments
- Car worth more than ~£1,000
- Luxury items and valuables
- Business assets
- Any assets transferred to others within 5 years
Generally Protected
- Basic household furniture and appliances
- Tools needed for your work
- Vehicle up to ~£1,000 in value (if needed)
- Approved pension funds
- Clothing
- Income needed for essential living costs
What Happens to Your Home?
This is the most significant concern for homeowners. The Official Receiver (or trustee in bankruptcy) acquires a beneficial interest in your home. This means they can potentially force a sale to release equity for creditors.
Key points for homeowners:
- No equity / negative equity: The OR is unlikely to take action. However, they retain the interest for 3 years.
- Equity exists: The OR will typically allow 12 months before applying to sell, particularly if a partner or children live there. They must pay your partner/co-owner their share of the equity.
- 3-year rule: If the OR has not taken action on the home within 3 years of the bankruptcy order, the interest reverts back to you automatically.
- Buying back the interest: In some cases, a partner or family member can pay the OR the value of the bankrupt's beneficial interest to prevent a forced sale. This is worth exploring.
Income Payments Agreement (IPA)
If you have surplus income — money left over after essential living costs — the Official Receiver can propose an Income Payments Agreement (IPA). This requires you to pay a portion of your surplus income to the OR for distribution to creditors for a period of up to 3 years from the bankruptcy order.
If you refuse to agree to a voluntary IPA, the OR can apply to court for an Income Payments Order (IPO), which has the same effect and is legally enforceable.
If your income drops significantly during the IPA/IPO, you can apply to vary the amount. If you experience a windfall (inheritance, bonus) during bankruptcy, you must inform the OR — it may be claimed for creditors.
What You Cannot Do During Bankruptcy
- Borrow £500 or more without telling the lender you are bankrupt
- Act as a company director without court permission
- Be involved in the formation, management, or promotion of a company
- Use a business name different from the one you were made bankrupt under without disclosure
- Hold certain public offices (justice of the peace, local councillor, etc.)
- Act as an insolvency practitioner, charity trustee, or in certain other regulated roles
Effect on Employment
Bankruptcy can affect your ability to work in certain fields:
- Financial services: FCA-regulated roles typically require disclosure; you may be suspended or dismissed. Being bankrupt disqualifies you from holding certain FCA approved persons roles.
- Legal profession: Solicitors and barristers face suspension or disqualification during bankruptcy.
- Accountancy: Chartered accountants may be required to notify their professional body and may face practice restrictions.
- Company directors: Cannot act as a director without court permission while bankrupt.
- Most other employment: Most standard employment contracts are not affected, though some include clauses requiring disclosure.
Always check your employment contract and any professional body membership rules before applying for bankruptcy.
Joint Debts and Co-Debtors
Bankruptcy only discharges your personal liability for debts. If you have a joint debt (e.g. a joint loan or joint overdraft) and you go bankrupt, your co-debtor remains fully liable for the entire debt. Creditors can and will pursue them for the full amount. This is a significant consideration if you have a partner with whom you hold joint debts.
What Debts Are NOT Cleared by Bankruptcy?
Most unsecured debts are discharged on bankruptcy, but the following are specifically excluded and survive discharge:
- Student loans (repaid through payroll via HMRC)
- Child maintenance arrears and Child Support Agency debts
- Magistrates' court fines and criminal confiscation orders
- Debts arising from fraud (proven in court)
- Social Fund loans
- Debts incurred after the bankruptcy order
Secured debts (mortgage, secured loans) are not cleared — the lender retains their charge over the asset.
Debt Relief Order (DRO) — The Lower-Cost Alternative
A Debt Relief Order (DRO) is a cheaper and simpler alternative to bankruptcy for people with:
- Total qualifying debt of £30,000 or less
- Surplus income of no more than £75 per month
- Total assets of no more than £2,000 (with a vehicle worth up to £2,000 allowed)
- Not been subject to a DRO in the last 6 years
The cost of a DRO is just £90, compared to £680 for bankruptcy. It lasts 12 months, after which qualifying debts are written off. It is arranged through an approved intermediary (often a debt charity) rather than applied for directly. A DRO also appears on the Insolvency Register and your credit file for 6 years.
Bankruptcy vs DMP vs IVA vs DRO Comparison
| Factor | Bankruptcy | DRO | IVA | DMP |
|---|---|---|---|---|
| Debt written off | Yes | Yes (after 12m) | Yes (at end) | No |
| Public register | Yes | Yes | Yes | No |
| Cost | £680 | £90 | £3–5k (built in) | Free |
| Home at risk | Yes (if equity) | No | Equity clause | No |
| Duration | 12m discharge; 3yr IPA | 12 months | 5–6 years | 5–10 years |
| Max debt level | None | £30,000 | None | None |
| Income required | No | No (low surplus) | Yes | Yes |
| Asset limit | None | £2,000 | None | None |
| Employment risk | Some sectors | Some sectors | Some sectors | Usually none |
| Credit impact | 6 years | 6 years | 6 years | 6 years |