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Bankruptcy - overview

This advice applies to Wales

If you have a debt problem, one of your options for sorting it out might be bankruptcy. You can apply for bankruptcy if you can’t pay back your debts.

As well as applying for bankruptcy yourself, someone else you owe money to (a creditor) can ask a court to make you bankrupt, even if you don’t want them to. They can only do this if you owe at least £5,000. You can find out more about creditors making you bankrupt

Bankruptcy can have serious consequences - it might not be your only option and it might not be the best one for you. You can get more information about other debt solutions, for example a debt relief order (DRO) or an individual voluntary arrangement (IVA).

If you owe money to people or companies in the EU

Any debts you owe people or companies in the EU might not be covered by bankruptcy. 

Your creditors could keep asking you for money, for example by calling you and sending you letters. 

If you live in the EU, they could take you to court in the EU. 

EU creditors still have to sue here in the UK rather than abroad in the EU, even if they have an existing judgment. The UK will recognise EU judgements entered or started before 31 December 2020.

If you live in the UK but have a home in the EU with a mortgage from an EU lender, the lender could take you to court in the EU. 

Get legal advice if you have creditors in the EU. Find free or affordable legal help.

Advantages of going bankrupt

When the bankruptcy order is over you can make a fresh start - in most cases this will be after a year. Other advantages of going bankrupt include:

  • the pressure is taken off you because you don’t have to deal with your creditors
  • you're allowed to keep certain things known as 'exempt goods', for example everyday household items, tools you need to do your job, a car if you need it to get to work or you're a carer and it's not worth more than £1,250
  • you're allowed to keep some of your income - but you'll probably have to live on less money than usual
  • if you have to make payments from your income, this can only be for 3 years - you won’t have to make payments if your only income is from welfare benefits
  • creditors have to stop most types of court action to get their money back following a bankruptcy order
  • you won't have to pay back the debts that bankruptcy covers

Disadvantages of going bankrupt

To apply to go bankrupt you’ll need to pay a £680 fee. Other disadvantages of going bankrupt include: 

  • if your income is high enough, you’ll be asked to make payments towards your debts for 3 years
  • it will be more difficult to take out credit while you're bankrupt and your credit rating will be affected for 6 years
  • if you want to take out a loan of more than £500, you have to tell the lender you’re bankrupt - you’ll break the law if you don’t
  • if you own your home, it might have to be sold - this depends on how much it's worth after any amounts secured on it are repaid
  • if you rent your home, your landlord could end your tenancy
  • some of your possessions might have to be sold if they are not 'exempt goods'
  • some jobs don’t let people who have been made bankrupt carry on working
  • if you own a business it might be closed down and the assets sold off
  • going bankrupt can affect your immigration status
  • your bankruptcy will be published publicly (although if you’re worried you or your family might be the victims of violence, you can go to court to get an order so your address details aren’t given out)

What happens at the end of bankruptcy

Your bankruptcy will normally end after a year - this is known as 'discharge'. After discharge you won't have to repay the debts covered by the bankruptcy. However you will still have to pay some debts like court fines and loans from the Student Loans Company.  

If the people dealing with your bankruptcy think you’ve been dishonest or reckless, they might ask the court to give you a 'bankruptcy restrictions order'. This means you’ll have to follow certain rules for up to 15 years. You can find out what happens if you get a bankruptcy restrictions order.

Next steps

Bankruptcy might help you become free of debts but it isn't the right option for everyone. It's important to know how bankruptcy will affect your day-to-day life and to explore the alternatives. 

It’s important to get advice before going bankrupt, you should contact your nearest Citizens Advice.

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