Most of your assets will be sold in order to raise money to pay off your debts when you’ve declared bankruptcy. The trustee appointed to handle your bankruptcy case will take care of all of this.
You will however, be able to keep certain assets including any possessions you need for work, such as any work vehicles or any tools, as well as basic household items like furniture, bedding and clothes.
Your bank and credit card accounts will be frozen at the banks’ discretion and any relevant cards handed over to your trustee. There will be exceptions to this though:
you’ll be able to access any money deemed necessary to purchase things like food, and if you have a joint bank account, then the secondary account holder will still be able to use their funds.
What is bankruptcy and how does it work?
Bankruptcy is a form of insolvency, that is, a declaration that you are unable to reasonably pay off your existing unsecured debts. It can be either declared voluntarily by yourself or involuntarily by an aggressive creditor to whom you owe a lot of money.
Once you’ve declared bankruptcy (or been declared bankrupt), you will no longer need to interact with your creditors. They will no longer be able to take further court action against you, nor will you be bombarded with threatening letters or phone calls from those to whom you owe money. Instead, this responsibility, as well as responsibility of your assets and money, will be taken over by a trustee. This trustee will either be an official receiver (an officer appointed by the bankruptcy court) or an insolvency practitioner (a debt specialist, usually an accountant or lawyer).
A bankruptcy order will usually last a year, after which your existing debts will be written off and you will, for all intents and purposes, be able to start over financially. Declaring bankruptcy involves going to court and the whole process will cost around £700, more if you use the services of a solicitor, which can be helpful but is not necessary.
For more help and advice, contact debt charity StepChange
How will declaring bankruptcy
affect me?
You will not be allowed to act as director or CEO of a company
You will not be allowed to manage a business without informing those you do business with that you are bankrupt
Your your non-essential assets and spare income will be used to pay off creditors
You will not be able to borrow more than £500 without informing the lender of your bankruptcy
Bankruptcy is among the most serious forms of insolvency available, but sometimes its the only option.
Individual Voluntary Arrangements (IVAs) tend to be preferable if you can get one. For more information on IVAs, click here
More information about bankruptcy
Assets
Home
If the only way for the necessary funds to be raised is the sale of your home, then the trustee may do this, meaning that you give up legal ownership of the property if you own it in entirety in the first place.
You will have to give up what is known as your beneficial interest in your property. This is the share of the property you own either after any secured debts like mortgages have been paid off, or your share of a jointly owned property.
There are exceptions to this though, you may be able to stop the sale of your house if: Your beneficial interest is worth under £1,000, or The beneficial interest or legal title can be passed on or sold to another individual like your partner.
You will also be able to delay the sale for a certain amount of time if you need to sort out somewhere for any of your dependents (i.e. your partner or children) to live.
If your home is sold as part of your bankruptcy arrangements, then you can get in touch with your local council or housing authority who may be able to arrange for you to stay in some form of social or public housing
You will have to give up what is known as your beneficial interest in your property. This is the share of the property you own either after any secured debts like mortgages have been paid off, or your share of a jointly owned property.
There are exceptions to this though, you may be able to stop the sale of your house if: Your beneficial interest is worth under £1,000, or The beneficial interest or legal title can be passed on or sold to another individual like your partner.
You will also be able to delay the sale for a certain amount of time if you need to sort out somewhere for any of your dependents (i.e. your partner or children) to live.
If your home is sold as part of your bankruptcy arrangements, then you can get in touch with your local council or housing authority who may be able to arrange for you to stay in some form of social or public housing
Income and Work
Bankruptcy can severely affect your current and future employment prospects. Certain industries will not allow those who have been made bankrupt to work with them.
Additionally, if you own a company, then the likelihood is that once you’ve been made bankrupt your business will be liquidated, any assets sold and any staff laid off.
Your trustee will decide whether or not (and how much of) your spare income needs to be used to contribute towards your monthly debt repayments. If this is the case, you’ll enter what is known as an Income Payments Agreement (IPA). If you do not enter this willingly, then your trustee can force you to – this is known as an Income Payments Order (IPO).
Additionally, if you own a company, then the likelihood is that once you’ve been made bankrupt your business will be liquidated, any assets sold and any staff laid off.
Your trustee will decide whether or not (and how much of) your spare income needs to be used to contribute towards your monthly debt repayments. If this is the case, you’ll enter what is known as an Income Payments Agreement (IPA). If you do not enter this willingly, then your trustee can force you to – this is known as an Income Payments Order (IPO).
What happens next?
A bankruptcy order usually lasts around a year, though this can be longer depending on how well you co-operate with your trustee.
Once you’ve been discharged, most of your debts will be written off, with the exception of any debts that arise from fraudulent activity, or those that weren’t included in the actually bankruptcy claim in the first place like student debts.
A bankruptcy order will remain as a negative mark on your credit report for up to six years after its completion, making it more difficult for you to access any kind of credit during this time.
Once you’ve been discharged, most of your debts will be written off, with the exception of any debts that arise from fraudulent activity, or those that weren’t included in the actually bankruptcy claim in the first place like student debts.
A bankruptcy order will remain as a negative mark on your credit report for up to six years after its completion, making it more difficult for you to access any kind of credit during this time.
Should I declare bankruptcy?
Declaring bankruptcy is quite a severe form of insolvency, given the fact that it is declared publicly and can result in the loss of almost all of your assets. As such it is not a decision to be taken lightly, though those who do declare bankruptcy are often left with little choice.
There are, however, other forms of insolvency or debt solution that may be applicable depending on the severity of the debt you are in. These other options include Individual Voluntary Arrangements (IVAs) or other debt consolidation arrangements like Debt Management Plans (DMPs).
Read our guides on both to find out more.
There are, however, other forms of insolvency or debt solution that may be applicable depending on the severity of the debt you are in. These other options include Individual Voluntary Arrangements (IVAs) or other debt consolidation arrangements like Debt Management Plans (DMPs).
Read our guides on both to find out more.
Last reviewed: 1 September 2024
Next review: 1 October 2024