What Is Bankruptcy and How Does It Work?
Last Updated: January 2025
Your complete guide to Bankruptcy in the UK. Discover how this legal process can clear your debts and what it means for your home, assets, and future.
Reviewed by FCA-regulated debt advisors | Partnered with UK Insolvency Service regulated advisors
Compare with an IVAWhat is Bankruptcy?
Bankruptcy is a formal insolvency process for people who cannot afford to repay their debts. When you are declared bankrupt, control of your assets (your property and belongings) is passed to an Official Receiver or a trustee. They may sell these assets to pay your creditors.
After a period, usually 12 months, you are 'discharged' from bankruptcy. This means most of your remaining unsecured debts are written off, allowing you a fresh start. It is a serious step and is often considered a last resort.
Legal Process
A formal court order that provides a final solution to overwhelming debt.
12-Month Discharge
You are typically freed from your debts and restrictions after just one year.
Debt Write-Off
Most unsecured debts are completely written off, providing a clean slate.
The Bankruptcy Process: A Step-by-Step Guide
- Get Debt Advice: Before applying, you must seek advice from a qualified advisor. They will confirm if bankruptcy is your best option. You can get free advice from services like Citizens Advice.
- Apply Online: You complete and submit your bankruptcy application online via the GOV.UK website. You will need to provide full details of your finances.
- Pay the Fee: You must pay the £680 fee in full. Your application will not be processed until the fee is paid.
- Bankruptcy Order: An adjudicator from the Insolvency Service reviews your application. If approved, a bankruptcy order is made, and you are officially bankrupt.
- Work with the Official Receiver: You will be interviewed by the Official Receiver who will manage your assets and deal with your creditors. You must cooperate fully.
- Discharge: After 12 months, you are usually automatically discharged. Your remaining eligible debts are written off.
Pros and Cons of Bankruptcy
Advantages
- Provides a relatively quick path to becoming debt-free (usually 12 months).
- Creditors must stop contacting you and cannot take legal action.
- You only make payments towards your debts if you have spare income.
- It offers a complete fresh start from unmanageable debt.
Disadvantages
- You may lose valuable assets, including your home and car.
- It has a severe negative impact on your credit rating for 6 years.
- Your name is published on the public Insolvency Register.
- It can affect your employment, especially in finance or law.
- The upfront fee of £680 can be difficult to afford.
Am I Eligible for Bankruptcy?
Unlike other debt solutions, the eligibility for bankruptcy is less about specific debt levels and more about your inability to pay what you owe. The main criteria are:
- You are unable to pay your debts.
- You do not have assets or income that would make another solution (like an IVA) more suitable.
- You live in England, Wales, or Northern Ireland.
- You have not been bankrupt in the last 6 years.
Bankruptcy is a serious step. For free, impartial advice on whether it's right for you, contact MoneyHelper or a debt charity.
Impact on Your Life
Credit Rating
Bankruptcy will be on your credit file for 6 years, making it very difficult to get credit, a mortgage, or even a mobile phone contract.
Your Home & Assets
Any valuable assets you own, such as a house with equity, a car worth over £2,000 (unless essential), or savings, will likely be sold to pay your creditors.
Employment
You cannot act as a director of a limited company while bankrupt. It can also bar you from certain jobs in law, finance, and accountancy.
Frequently Asked Questions About Bankruptcy
What is bankruptcy?
Bankruptcy is a legal process for individuals who are unable to pay their debts. It's a form of insolvency where your assets are used to pay off your creditors. Once you are 'discharged' from bankruptcy, usually after 12 months, most of your remaining unsecured debts are written off, giving you a fresh financial start. The process is overseen by an Official Receiver and regulated by the UK Insolvency Service.
Will I lose my house if I go bankrupt?
It is possible. If you are a homeowner, your share of the equity in your property is considered an asset. The Official Receiver may sell your home to release this equity for your creditors. However, if the equity is very low (under £1,000) or if a third party can buy out your share, you may be able to keep it. If you rent, you can usually stay in your home as long as you keep up with rent payments. An IVA is often a better option for homeowners who want to protect their property.
How much does it cost to go bankrupt?
In England and Wales, the fee to apply for bankruptcy is £680. This is a non-refundable fee that must be paid upfront to the Insolvency Service before your application can be processed. There is no option to pay in instalments. This cost can be a significant barrier for people with no disposable income.
How long does bankruptcy last?
You are typically 'discharged' from bankruptcy after 12 months. This means you are freed from your debts and the bankruptcy restrictions are lifted. However, the bankruptcy will remain on your credit file for 6 years from the date it was approved, making it difficult to get credit during this time. It will also be listed on the public Insolvency Register.
Is Bankruptcy Your Only Option?
Bankruptcy is a serious step. For many, an IVA can be a better alternative that protects your home and assets. Check if you could qualify for an IVA instead.
Check My IVA Eligibility