What is Bankruptcy?

Tuesday, 29 March 2022

What is Bankruptcy?

The term bankruptcy, to a lot of people has a stigma attached to it and can appear very daunting.  However, dependent on an individuals circumstances, bankruptcy could be the right solution for them and deal with their debts relatively pain free.

Bankruptcy is a court based procedure, which can be applied for, by you personally or it could be forced on to you by a creditor that you owe a certain amount of debt to.  In most instances, all debts and liabilities are written off when the Bankrupt is discharged after 12 months.  It should be noted that for a bankruptcy action to be commenced, you have to owe a minimum of £5,000 to either one or a group of creditors.  

There are 2 entry routes for Bankruptcy:

1. Debtors Petition - this is when an individual applies to Court to adjudicate themselves bankrupt

2. Creditors Petition - this process is invoked when an individual owes a creditor money and the creditor commences recovery action via the High Court

Upon a Bankruptcy order being made, a line is drawn under your debts up to this point and you cannot be pursued for them directly by the creditor.  Instead, an individual appointed by the Insolvency Service will liaise with you regarding repayment.  Once a Bankruptcy Order is made, the Bankrupt has a legal duty to assist the Insolvency Service with any queries raised on their financial affairs.

Key Considerations

Prior to considering Bankruptcy, we have highlighted key areas which you should consider and/or take advice upon:

  • If you have equity in your home i.e the value of your home is more than the current outstanding mortgage your house maybe sold to release funds to pay back your creditors


  • You are only allowed a vehicle with value of up to £2,000 (exclusive of finance).


  • Some professions may be affected if made bankrupt.


  • During your bankruptcy year, you are not allowed to act as a director of a company or be directly involved in the management of a company.


  • Dependent on the level of your income, you may be subject to an order instructing you to make payments towards paying off your debts for a period of 3 years.


  • You will fall under the restrictions of bankruptcy usually for 12 months, however this is dependent on your co-operation and your open and honest disclosure of assets.  If it is believed you have misled the Insolvency Service or your Trustee, a bankruptcy restriction order can be made for up to 15 years.


Careful consideration of the potential options based on your financial circumstances is key to making the right decision for you.  If you are currently facing financial difficulties, contact one of our advisors who will be able to talk through whether Bankruptcy is the right option for you.