What Happens When You Go Bankrupt?

Bankruptcy is a legal process that confirms insolvency; that they cannot pay amounts of debts that they are liable to pay. Bankruptcy relates to an individual. Winding up is the equivalent that applies to companies. 

The consequences of declaring bankruptcy can be severe, including losing assets and being restricted from future business activities. However, it also carries various benefits, often making it an option for individuals facing financial difficulty.

Importantly, as well as bankrupting yourself, you can also be made bankrupt by someone else. The impact of insolvency is so significant that this can be a useful debt recovery tool- and an effective approach forcing a debtor to engage and to try to resolve matters.

If you owe someone a court ordered debt that has not been paid, or if someone has served you with a statutory demand for over £5,000 which has not been paid or set aside, they will be entitled to petition the court for your bankruptcy. It is therefore highly important that you take court judgments and statutory demands served on you seriously. If you have any concerns regarding your ability to make payment or what your next steps should be, contact Helix Law and we will be happy to assist. We are litigation solicitors and our specialist commercial litigation team use bankruptcy and the threat of insolvency to assist our clients aims from time to time. We dont act or advise in voluntary bankruptcy situations and cannot assist if you admit you owe money but cannot pay.

This article explains what happens to your debts when you go bankrupt, and risks. If you are being inappropriately threatened with bankruptcy and want to seek legal advice challenging this- don’t hesitate to contact our team. If you are owed money and considering pursuing bankruptcy as an option, we’re also well placed to assist you. It might be that there are better, more effective options. For more information and advice, contact Helix Law today. 

Will My Debts Be Written off if I Go Bankrupt?

In England and Wales, most of your debts are written off when you go bankrupt. However, not all debts are covered, and you may still be liable to make specific repayments. The following will usually remain payable:

• Student loans
• Spousal and child maintenance payments (unless you obtain a court order that says you no longer have to pay)
• Criminal fines in the Magistrates court 
• Debts secured over your home, including mortgages
• Some payments owed to individuals or companies based in the European Union

Before you begin bankruptcy proceedings, you should check which debts are covered. 

Declaring Yourself Bankrupt: The Process

Assess Your Financial Situation 

Before deciding if going bankrupt is the right option, evaluate your financial situation and consider other ways to manage your liabilities. Create a list of your assets, liabilities, income and expenses to understand what you can afford and identify what you might still have to pay.

If you dispute the debt, or you consider it is secured against assets, or if you are owed money by the same people you owe money to, consider obtaining specialist litigation advice; you might be able to avoid bankruptcy. 

If you otherwise admit the debts but need professional advice you should contact debt advisers including an insolvency practitioner. We cannot assist you with this advice.

There are other potential options to bankruptcy that might be more appropriate for you including an Individual Voluntary Arrangement (IVA), which allows you to repay over an agreed period, or a Debt Relief Order, which writes off debts if you meet specific eligibility criteria. You should speak to a financial advisor or insolvency practitioner on these options. 

Make an Online Application 

If you decide your best option is to go bankrupt, you must make an online application through the government website. You must provide information about your income, expenses, and debts. Before you apply, have the following documents ready:

• Payslips
• Benefit statements
• Pension statements
• Evidence of outgoings, such as utility bills
• Correspondence from bailiffs or debt enforcement

Pay the Fee

The Insolvency Service won’t process your application until you pay the fee, which is currently £680. There are options to pay the fee in instalments if you can’t afford it in one go. You can also speak to a financial advisor who can refer you to a debt charity if you cannot pay the fee. 

Receive a Bankruptcy Order

Once you submit your application, the Insolvency Service will review it and establish if you meet the relevant requirements. The service may reject the application if you have sufficient assets or income to settle your debts or if they consider an alternative option more suitable. 

You should hear back within 28 days. If they accept your application, they will issue you a bankruptcy order, which prevents creditors from contacting you or bringing enforcement action.

You must provide complete and accurate financial information to the Official Receiver, who manages bankruptcies. You must also inform them if you receive an income increase during the process. 

Settle Debts

The Official Receiver will take control of your assets and decide what they can sell or realise to discharge your debts. They will appoint a trustee in bankruptcy (TiB) who is responsible for selling assets and paying off debtors. The TiB will focus on non-essential assets where possible, including selling your home if this is the only way to repay creditors. 

If you have disposable income, they might require you to make monthly repayments to your creditors. 

Comply with Restrictions 

Certain restrictions apply to individuals who go bankrupt, including not obtaining credit of £500 or more without disclosing your bankruptcy, conduct business activities, or become a company director.

Failure to comply with these restrictions is a criminal offence. It could result in a significant fine or imprisonment, so you must understand these limitations if you’re issued a bankruptcy order. 

Discharging of the Order

Individuals are usually discharged from bankruptcy after 12 months, meaning they’re released from the relevant debts, and the restrictions no longer apply. However, the Official Receiver can extend the period if the individual fails to cooperate. 

The Insolvency Service doesn’t automatically send individuals a letter to confirm discharge. To obtain a Certificate of Discharge, you must request it from the court or Insolvency Service and pay the relevant fee. 

What Are the Benefits of Declaring Yourself Bankrupt?

Relief from Debts

Bankruptcy can be an effective way to relieve people from their debts when they can’t afford to pay their creditors. By the end of the relevant period, most debts are written off, and the individual has a fresh start financially. 

Protection from Enforcement

After receiving a bankruptcy order, creditors cannot contact or bring enforcement action against the individual. They must freeze any existing legal proceedings, giving the trustee time to settle outstanding payments. However, this doesn’t apply to secured dates like mortgages, which lenders can still enforce. 

Specified Timeframe

The procedure offers individuals peace of mind, as they know their debts are discharged after 12 months, and they can usually resume their financial activities. This clear timeframe provides certainty and allows individuals to plan for their future. 

Risks of Declaring Bankruptcy

Loss of Assets

The Official Receiver and TiB must take control of the bankrupt’s assets and sell what’s necessary to settle their debts. This can mean they sell your home, business or another valuable asset. Losing these assets can be difficult, so considering another repayment option is usually advisable. 

Credit Rating

Bankruptcy remains on your credit file for six years and will impact your ability to obtain a mortgage or other loans for far longer. It can also affect your ability to rent or secure insurance. You should check your credit file after six years to ensure the credit reference agency removes any bankruptcy record. Some applications will ask you to disclose your financial position and whether you have been in bankruptcy for far longer beyond this period of time.

Impact on Jobs

While most restrictions do not apply once the process ends, there are still specific careers and industries, such as finance and law, that you might struggle to work in even after the 12-month period expires. 

Your current employer could also demote you or take away specific responsibilities due to your bankruptcy. For example, if you’re a company director, you cannot continue to work in this role while your debts remain undischarged. 

Do You Ever Recover From Bankruptcies?

Although going bankrupt can be a stressful process, it’s possible for individuals to recover from it. Realistic budgeting, planning, and compliance with restrictions can allow people to rebuild their financial stability. 

You should consult an independent financial advisor to help you understand how to save and manage your finances before and after bankruptcy.

Frequently Asked Questions

Do I Have To Pay Anything if I Go Bankrupt?

If you have disposable income, you may be required to make regular payments towards your debts if you go bankrupt. This arrangement is known as an Income Payment Agreement (IPA) and usually lasts up to three years. If this doesn’t apply to you, the only thing you’ll likely have to pay is the bankruptcy court fee. 

Can You Get Money Back After Bankruptcies?

If surplus assets are available once the trustee settles your debts, they will return them to you. Once you’re discharged from bankruptcy, any assets or income you acquire will belong to you and cannot be accessed. In some situations, particularly inheritance, assets acquired after discharge may still vest in the trustee.

Final Thoughts

Bankruptcy is a significant event that comes with both risks and some benefits. While it can provide debt relief and a fresh financial start, it also carries long-term consequences, including restrictions on business activities and damage to your credit rating. In litigation terms there is a significant stigma attached to bankruptcy and insolvency generally speaking. It can be used as a tool to force engagement by a debtor keen to avoid bankruptcy but who has otherwise be silent. 

If you’re facing threat of bankruptcy that is inappropriate, or are considering using threat of bankruptcy as a tool to assist you in recovering money owed, Helix Law is here to help. Our experienced commercial litigation team frequently advise on using insolvency and defending against its use, and will be happy to assess your position to maximise your position. Contact Helix Law today for more information.