This is a form of insolvency that clears your debts if you can't afford to repay them, allowing you to start over.
What is bankruptcy?
It’s a debt solution which can help you become debt-free. It’s not right for everyone though, so it’s a good idea to understand how it works, and what the alternatives are.
When bankruptcy is suitable
It might be right for you if:
- you can’t pay what you owe
- you don’t have many assets
- there’s very little equity in your home
- you live or have a business in England or Wales, or have in the last 3 years
If the value of your unsecured debts – debts like loans and credit cards which aren’t secured against your property – are more than the things you own, declaring bankruptcy might be suitable for you.
When going bankrupt might not be right for you
It may not be right if:
- you work in certain financial or professional occupations – your professional association might not allow someone who has been bankrupt
- you’re going to inherit money or you’re expecting a compensation payment which can help with your debts
- you don’t want your debt problems to become public
You need to pay £680 up front to declare bankruptcy.
Your home might be sold to pay your debts, if you own it. Tenancy agreements for renters may state that you can’t rent the home if you’re bankrupt, and you might find it harder to find a place to rent in future.
Your bankruptcy will appear on your credit report for 6 years, and any creditor you apply to will be able to see it. This might make it difficult to get things like loans and mortgages, but if you’re considering declaring bankrupt it may be that your credit report is already in a pretty bad shape.
If you want to borrow more than £500 you have to tell the company you’re applying to about your bankruptcy.
Your cars or items of value might be sold so the money can go towards paying your debts.
Alternatives to bankruptcies
If you can’t repay your debts you could qualify for a number of other debt solutions that could help you:
This is a legally binding arrangement between you and your creditors that lets you make affordable repayments – normally five to six years – and any outstanding debts are written off. IVA’s let you keep your assets like your home and car.
An informal arrangement where you make reduced payments to your creditors – based on what you can afford.
If you have assets of less than £1,000, a surplus of less than £50 per month, and debts less that £20,000 – you could qualify for a DRO. They last for a year, and any outstanding debt is written off.