A Guide to Bankruptcy Proceedings

If you’re facing an overwhelming amount of debt with no way to pay it all back, it might be time to consider starting bankruptcy proceedings.

This process essentially wipes the slate clean of all unsecured debts – debts which aren’t backed by collateral such as your house or car.

In this guide, we’ll help you find out more about bankruptcy proceedings.

Note: Our advice applies to residents in England and Wales. Different procedures and rules apply in Scotland and Northern Ireland.

What is a bankruptcy proceeding and when should I consider declaring bankruptcy?

Declaring yourself bankrupt can give you a bit of space when creditors are breathing down your neck, and you need to work out your next move.

You should consider bankruptcy proceedings – or at least consider taking advice from a legal expert – when your debt outweighs your assets, and the situation is unlikely to change in the foreseeable future.

However, this probably isn’t the right option should your job not allow anyone who’s declared bankruptcy, or if your financial situation is likely to change shortly, or you don’t want your financial problems made public.
Bankruptcy isn’t for everyone.
Starting bankruptcy proceedings is a serious step that can have a big impact on your life, your work, and even your home. You should consider whether there might be other options to deal with your debts before applying for bankruptcy. 

For example, if you owe less than £20,000 and have few assets, you could be eligible for a Debt Relief Order instead, costing £90.

Your current and future circumstances play a big part in working out whether bankruptcy is the right choice for you, and you should remember that not all your debts will be written off.
You’ll still need to pay back certain debts, including:
  • Secured loans and debts
  • Court fines and fees
  • Student loans
  • Maintenance and child support payments
  • Your mortgage, if your home isn’t sold
  • Damages awarded against you due to injuring another person
  • Debt acquired through fraud.
Bankruptcy usually won’t directly affect your spouse or civil partner’s finances. Any money they’ve put into joint savings is returned to them, and it shouldn’t impact their credit rating. However, they may become liable in full for some types of joint debt, and any jointly owned property may be sold.

Because of the serious consequences of filing for bankruptcy, it’s always best to seek expert advice from a legal professional who can guide you through the proceedings.

How does bankruptcy work and what happens when I declare it?

Before you begin proceedings, it’s important to get a good idea of how bankruptcy works.

The process for filing involves:
  • Applying for bankruptcy online and paying the £680 fee
  • A court officer investigating your finances
  • An adjudicator deciding whether you need to pay anything towards your debts, and how much. Money is raised towards paying debts off from any savings you have, or by selling valuable assets like your house or jewellery
  • An official receiver taking control of your money and property.  Your bank can use money in one account to pay money owed to them under another. Make sure to withdraw enough to cover living costs for the first few weeks, as your bank and building society accounts can be frozen immediately but bear in mind that you will still be given an allowance for living costs during the bankruptcy process.  A notice declaring your bankruptcy will be made public.
Creditors (people to whom you owe money) can also ask a court to declare you bankrupt. They often do this when they suspect you have high-value assets that can be used to repay your debt to them.

Proceedings can only be initiated this way if you owe more than £5,000. Creditors also need to show that they have tried to recover the money by other means, either by sending you a statutory demand for the money or sending bailiffs to try and enforce a court judgment against you, or both. 

If bankruptcy proceedings are raised against you, you will be notified by the court.
  • Pros of declaring bankruptcy

Having your debts written off (apart from the exceptions mentioned above) is the main advantage of bankruptcy.  Another benefit is no longer having to deal with your creditors yourself.

Nevertheless, you should only opt for bankruptcy if your debt is more than your total assets, and repayment isn’t feasible – few creditors would be interested in a 60-year repayment plan, for instance.

Any other benefits of bankruptcy, such as they are, fall into the ‘essentials’ category. The courts won’t sell general household items, for instance, so you’ll still have plates for dinner and sheets on the bed; your pensions aren’t usually affected by bankruptcy, and you can keep job-related items like tools.

You won’t lose your car if you rely on it to get to work or care for someone, unless selling it would help pay off your debts and fund a cheaper replacement car.
  • Cons of declaring bankruptcy

Declaring bankruptcy also means accepting major restrictions on what you can and can’t do.
You won’t be allowed to be a company director, manage a business, or start a new one until the bankruptcy is discharged.  Immigration status can also be affected.

You’ll need to make payments towards the debt for 3 years. The bankruptcy will also show on your credit report for 6 years, limiting your access to further credit – this can extend to 15 years if you’re the subject of a bankruptcy restriction order.

If you own your home, you’ll likely have to sell it, and if you rent, your landlord may cut short your tenancy. Other belongings may need to be sold, unless they are exempt, and your employment may also be terminated if it doesn’t allow bankrupt employees – e.g., jobs in the financial services industry.

Your bankruptcy may also be publicised in various places – notices advising your creditors may be published online and in newspapers.
Make sure you can afford to file for bankruptcy. The cost of an application is £680.
If you’ve sought professional guidance and decided this is the right choice for you, filing for bankruptcy is simple: just complete the application on the government website.

Make sure you have payslips, pension statements, benefits receipts, bills, and any letters from your creditors or their bailiffs.

The matter will then be investigated by court officials, who will let you know the outcome and your next steps.

How long does bankruptcy last?

Bankruptcy will usually come to an end 12 months from the date of declaration, although it can be extended if you have not fully co-operated. After that, it’s discharged, and restrictions no longer apply. You can use the Insolvency Register to check your discharge date.

If you file a standard bankruptcy application, the timeline looks like this:
  • After 1 year, all your unsecured debts will be cleared, and you can run or manage a business again, and take out loans of more than £500
  • After 15 months, your bankruptcy details will be removed from the Insolvency Register
  • After 3 years, a receiver or trustee must have decided whether to let you keep your house or whether to sell it
  • After 3 to 4 years (depending on when payments started), any payments towards your debts from any surplus income ­– through an income payment arrangement or order (IPA or IPO) – will come to an end
  • After 6 years, all record of your bankruptcy will be removed from your credit report.

Can I stop court proceedings for bankruptcy?

Sometimes you can ask the court where you were made bankrupt to cancel your bankruptcy.

You can ask to have the bankruptcy annulled if:
  • The bankruptcy shouldn’t have been made
  • All debts and fees have been paid or another person or organisation has guaranteed their repayment (repayments should be made through a solicitor)
  • You’ve agreed a repayment plan with your creditors (known as an Individual Voluntary Arrangement).
You can’t recover any assets that have already been sold prior to your annulment application. You must also inform credit record agencies of the cancellation.

How do I find the right solicitor when declaring bankruptcy?

Due to the seriousness of declaring bankruptcy, it is strongly advisable to speak to a solicitor as soon as possible. They’ll be able to advise you on whether bankruptcy proceedings are necessary and how to submit your application properly – most legal professionals charge a fixed fee for this service.

If you give us a few details, we’ll help connect you to up to four professional legal providers to help you through your bankruptcy proceedings.

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