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What is bankruptcy?

We understand that if you’re struggling to keep up with your debt payments then you might be looking into other options and considering bankruptcy. 

At Lowell, we know that deciding what next steps to take is an important decision which is why we’ve created this guide to answer questions like ‘what is bankruptcy’ and ‘how bankruptcy can affect you’.

This content is intended to be an impartial guide regarding bankruptcy, what it is and how it can affect you. Lowell Financial Ltd is not endorsing any one type of solution; as every circumstance is different and a solution that is right for one person may not be suitable for another.

What is bankruptcy? What happens if you’re declared bankrupt?

Bankruptcy is a legal process and a type of insolvency in place for people who are struggling to pay their outstanding debts.

To become bankrupt, you’ll need to be classed as ‘insolvent’. This means that there is no way that you can pay off your outstanding debt amount. If you’ve got savings that could help or another debt solution is better suited to your situation, your application could be rejected.

If you’re declared bankrupt, any debts that are part of the order will be written off. This means that you won’t have to pay these debts back and will no longer be contacted about them by the people you owe, your creditors.

Deciding to go bankrupt is an important decision. This is because it can impact you in other ways such as your employment and assets.

Bankruptcy works slightly differently around the UK. For more information about how bankruptcy works elsewhere, you can read Citizen Advice Scotland’s guide on bankruptcy in Scotland and nidirect’s article on bankruptcy in Northern Ireland.

If you’re considering going bankrupt and seeking advice, please let us know. We won’t be able to offer any support or guidance on bankruptcies but we can help to put you in touch with those who can.

There are lots of free and independent organisations who can offer expert debt advice including StepChange and National Debtline. During this time, we’ll also give you the time to seek advice by putting your account on hold.

How much does it cost to go bankrupt?

The cost to go bankrupt can vary depending on where you live in the UK. For those living in England and Wales, it costs £680 with £550 going to the official receiver and an £130 adjudicator fee.

You can choose to pay this amount in full or in instalments although either way you’ll need to pay the total before you can submit your bankruptcy application.

As we mentioned, the bankruptcy process varies around the UK, and this includes the cost to go bankrupt. In Northern Ireland, you’ll have to pay £683 which is made up of a £525 bankruptcy deposit, £151 court fee, and £7 solicitor’s fee.

As for Scotland, the standard bankruptcy fee under the full administration process is normally £150 which is paid to the Accountant in Bankruptcy. However, if you go bankrupt under the minimal asset process (MAP) rules there is no fee to pay.

How long do bankruptcies last?

Typically, you’ll be ‘discharged’ from your bankruptcy after a year which means debts that were included in the bankruptcy are written off.

However, remember that you’re still liable and will still need to pay any debts that weren’t included in the bankruptcy. It’s worth noting that non-eligible debts including student loans, court fines or child maintenance won’t be written off.

Which debts can’t be included in a bankruptcy?

Similar to other debt solution options, not every debt can be included in a bankruptcy. This means that even if you’re declared bankrupt, you’ll still need to continue making payments towards them.

Examples of debts that can’t be included in a bankruptcy are:

  • Child maintenance arrears
  • Student loans
  • Criminal fines
  • TV licence arrears
  • Fraudulent debts
  • Debts which have accrued after your bankruptcy has started

Mortgages and other secured debts can also be included in your bankruptcy if you ‘surrender’ the asset or it gets repossessed.

Any joint debts won’t be written off by the bankruptcy, but you won’t be liable to pay them either. However, the other person(s) will still need to pay off the rest in full.

How to apply for bankruptcy

There are two ways you can be made bankrupt – by applying yourself or a creditor doing so to recover money. If a creditor is trying to make you bankrupt, then the process is different. To find out more, Citizens Advice has a guide going into further detail on the process and your options.

If you’re curious about how to apply for bankruptcy yourself, there are a few steps involved.

1.       Firstly, it’s important to be 100% sure that bankruptcy is the right option for you. If you’re uncertain, there are various independent organisations that can offer debt support based on your personal situation.

2.     To apply, you’ll need to complete an online application on the GOV UK website and pay the bankruptcy free. As part of this you’ll be asked to give personal information including your debts, employment, bank accounts, outgoings, pension, and assets (e.g. home or car). If relevant, you can also include letters from bailiffs (enforcement officers) or enforcement agents.

3.     An official adjudicator from the Insolvency Service will review your application and let you know their decision within 28 days. It’s worth mentioning that they may need additional time if you’re asked to provide more information to support your case.

4.     If your application is successful, your banking-related account(s) will often be frozen straight away.

5.     Within 2 weeks of the bankruptcy order being made, an interview will be arranged with the official adjudicator to discuss the bankruptcy. Generally, this will be over the phone.

When applying for bankruptcy, if you forget to include an eligible debt in your application, this can typically add this later on.

What happens if my bankruptcy application is rejected?

If your application is rejected by the official adjudicator, you can ask them to take another look. To do so, you’ll need to submit form N161 to your local court that handles bankruptcies.

For help related to completing your form, you can seek advice from a solicitor or Citizens Advice.

If your bankruptcy application has been rejected, it might be because bankruptcy isn’t the right solution for you. You can read our guide on the different types of debt solutions which discusses these in more detail and explains where you can seek guidance.

Advantages of bankruptcy

  •  Debts included in a bankruptcy are usually written off after 12 months once you’re discharged.
  • It can offer you protection from creditors as once you’re declared bankrupt, interest and other charges on the included debts will stop. Creditors also won’t be able to take legal action against you including issuing a CCJ or sending bailiffs.
  • Bankruptcy may be able to give you peace of mind and help you have a fresh start.
  • You don’t have to owe a certain amount of debt to be able to apply for bankruptcy.
  • In England and Wales, you can apply for bankruptcy online.

Disadvantages of bankruptcy

  • It’s possible that your bankruptcy period could be extended to longer than 12 months.
  • Bankruptcy is likely to have a negative effect on your credit file which may impact future lending and could make it more difficult to get credit.
  • Bankruptcy appears on a public register and remains on your credit file for 6 years.
  • Valuable assets such as your home or car may be sold on your behalf by the trustee.
  • Some debts such as student loans and child maintenance can’t be included in bankruptcy.
  • It may affect your job and employment.

Do you lose your bank account if you go bankrupt?

Once declared bankrupt, usually your account(s) will be frozen straight away until the official receiver has reviewed your transaction history.

Depending on the bank, your account(s) may be closed entirely so you’ll have to open another new account with a different bank, or you may be able to keep it open as long as it’s a basic account. However, for any accounts with an overdraft or other debts, most banks won’t let you keep this open.

In the situation where your account is closed, the remaining balance will go to the official receiver. It is up to the official receiver whether you’re allowed to access this if you need to cover any essential living costs.

When considering if bankruptcy is right for you, it’s important to consider how you’re going to receive a salary or make payments like bills if your account is closed.

I’ve been declared bankrupt, why am I being contacted about a Lowell debt?

Once you’re declared bankrupt, you shouldn’t be contacted about any debts included in the bankruptcy. If Lowell have been in touch about a debt that you think should have been written off or included as part of a bankruptcy, please let us know so we can investigate.

It may be that your Lowell debt isn’t covered by the bankruptcy. If you’re unsure, let the official receiver know that Lowell have been in touch. Alternatively, you can also check details by searching the bankruptcy and insolvency register.

For more guides on debt-related topics and information about how we work here at Lowell, you can check out our Debt Guidance Hub.

·     First published: 9th October, 2023