Declaring bankruptcy is a way of declaring yourself as insolvent and is a method used when someone cannot repay any of their debts or meet repayments.
It costs £680 to apply for bankruptcy and it is a big step with serious implications. It could remove some of the pressure of being chased for money and at the end of your bankruptcy, your debts could be written off, however you should consider the negative consequences of bankruptcy before going down this route.
Consequences of bankruptcy
Bankruptcy has a big impact on your finances. Your name and details will be published on the Individual Insolvency Register which is available to anyone who wants to search it.
Your bank accounts will usually be frozen, there may be restrictions on your borrowing and your assets could be sold to pay off your debts. Depending on your income, you may have to continue making payments to cover your debt for up to three years.
If you are a homeowner, you may be forced to sell your home. If you rent, the landlord could apply to evict you for non-payment and other landlords may view you as high-risk.
It may also be more difficult for you to get approved for credit. Bankruptcy can remain on your credit file for up to six years. Some lenders will refuse to offer you a mortgage, loan or other credit if you have a bankruptcy on your file.
Not all debt is written off through bankruptcy; student loans, child support, secured loans and court fines won’t be cleared.
Applying for bankruptcy is a big step and should not be taken without seeking advice from a debt specialist. Your local Citizens Advice centre is a good place to start.
Being made bankrupt by someone else
It is possible for someone to apply to make you bankrupt. They can only do this if you owe them over £5000 and they should try to get you to pay the debt using other legal approaches first. Many high-street lenders would prefer to try and help you resolve the debt in alternative ways before making you bankrupt.
When should you declare yourself bankrupt?
You should not apply for bankruptcy until you have spoken to a professional debt adviser. There are many things that need to be considered first. A professional adviser will help you understand all available options so you can make the right decision. There may be alternative ways to take care of your debt.