Becoming bankrupt is a major step, not to be entered into lightly. While bankruptcy can free you from your debts (and from the stress of dealing with creditors), it has serious long-term implications.

We've written this site to help you understand the way bankruptcy works, the steps you may go through and the impact it will have on your life and relationships.

The bankruptcy process can be a daunting one, and the restrictions placed on bankrupts’ activities can be severe. This guide is intended to offer an overview of the bankruptcy process, and to offer some insight into both the realities of bankruptcy and the means by which you can become bankrupt.

1. Getting help initially

At the outset, you should always seek independent advice before petitioning for bankruptcy (we include information on how to seek help on this site). This course of action is not for everyone, and there may be other ways to deal with your debts.

2. What is bankruptcy?

Bankruptcy is one way in which you may be able to manage debts that have become overwhelming. It is a type of court order that means responsibility for your financial affairs is passed on to an officer of the courts known as an Official Receiver. You will no longer have to deal with creditors and, after a certain period of time, most of your debts will be written off. In the meantime, you are generally not permitted to make payments direct to your creditors. Instead, the court may ask you to make agreed payments from your income that will go towards paying your creditors. You may also lose assets of value, like your home.

You can apply for bankruptcy yourself – or one or more creditors can petition for your bankruptcy against your will.

3. What are the alternatives?

It is vital to understand that bankruptcy is just one way of dealing with debt, and it is not right for everyone. There may be alternatives to bankruptcy that are more suitable in your circumstances, and you should investigate these fully before taking action.

Some of these alternatives have eligibility criteria that only make them suitable in certain circumstances. The Individual Voluntary Arrangement (IVA) is one of the most popular alternatives. This is a formal arrangement made between you and your creditors, and overseen by the courts. It is designed to be a cheaper, quicker, and less onerous way of dealing with your debts – but it may not be suitable for you.

4. Struggling with debts?

If you are struggling to pay your debts, remember that bankruptcy and IVAs should never be your first port of call. Instead, in the first instance you should contact your creditors directly and explain the situation. Creditors will often be willing to accept informal proposals, for example to pay back your debts over a longer period of time.

Finally, you might consider entering into an informal arrangement with a family member or friend. Of course, this option is not available to everyone – but if you do consider this, you should make sure that the terms of your arrangement are clearly set out from the beginning.

5. Do I need professional help to go bankrupt?

If, having taken suitable advice, you are confident that it is the right course of action, your next step is to petition the court for your bankruptcy.

There are a few things to note before you begin. First of all, while some people choose to appoint a professional to help them through the process, this is not necessary. You can go through bankruptcy proceedings without professional help. Secondly, you should remember that bankruptcy is not free. The court will only consider your petition if you can demonstrate that you are able to pay the associated fees; these include a deposit to cover the cost of administering your bankruptcy, and a court fee. The fees may be reduced if you are in receipt of income support.

6. How to declare bankruptcy

You will then need to acquire and complete two separate forms. These are the Debtor’s Bankruptcy Petition, and the Statement of Affairs, Debtor’s Petition. These forms are available on the Insolvency Service website. You will normally need to make two copies of each form, and give these (along with the original) to the court. The Statement of Affairs requires you to give details of all your debts, along with all of your assets. You will need to know the names and addresses of all your creditors in order to complete this form. The Debtor’s Petition, meanwhile, gives you the opportunity to explain why you are petitioning for bankruptcy.

You should then find your nearest bankruptcy court. Note that this may not be the court nearest to your home. Instead, the relevant court will be the one closest to the location in which you have lived or traded for the longest period over the last six months.

You should then make an appointment with the relevant court and, at the allotted time, make your petition. Make sure that you take all the copies of your forms. The court will then consider your petition.

7. What happens next?

Having considered your petition, the court will: accept it; reject it outright; reject it and recommend an alternative such as IVA or adminstration order. They may ask you to gather more information and come back to them.

If your petition is accepted, your case will be assigned to an Official Receiver. This individual, who is an officer of the court, will be responsible for managing your bankruptcy, and eventually discharging it.

8. The official receiver

The Official Receiver will gather information about your financial situation, and investigate your assets. They might oversee the sale of some of those assets in order to pay off your creditors. As has been mentioned, it is important to understand that you may lose your home.

Depending on the nature and complexity of your financial affairs, you may be required to attend a personal interview with the Official Receiver. Alternatively, if your affairs are relatively straightforward, this might be conducted over the phone.

If you are asked to attend an interview, you will need to take along a variety of information and paperwork. Again, what you need to take will depend on your circumstances, and the Official Receiver will tell you what they require in writing in advance. You may be asked to fill in a Preliminary Information Questionnaire before your interview, which will include questions about your assets and debts.

9. What if my petition is rejected?

If the court rejects your petition for bankruptcy, you should seek advice from your local Citizens Advice Bureau or a financial advisor. In some cases, the court will reject your petition on the basis that an alternative solution would be better for you. In these cases your fees may be used for that alternative solution – but you should understand that the court is under no obligation to refund your fees if your petition is rejected.

10. How is the bankruptcy managed?

Your bankruptcy will be managed by a Trustee. If your affairs are relatively simple, the Official Receiver will probably take on the role of Trustee. If your affairs are more complex, however, the Official Receiver may instead ask for a private sector Insolvency Practitioner to be appointed.

11. How does a trustee operate?

The Trustee will try, amongst other things, to make sure that your creditors receive at least some money. There are three main ways in which this might be achieved. First, the Trustee may sell your assets and use the money to pay your creditors.

Second, the Trustee might ask you to enter into an Income Payments Agreement (IPA). This is a voluntary arrangement in which regular payments are made to your creditors from your ‘surplus income’ – that is, the money that is left over from your income after you have met your basic living costs.

Finally, if you cannot agree with your Trustee on an IPA, the Trustee may apply to the court for an Income Payments Order (IPO). This means that money can be taken directly from your pay packet and given to your creditors. Again, these payments will only be taken from your surplus income.

12. What are the other effects of bankruptcy?

The effects of bankruptcy are very serious. You should seek legal advice before petitioning for bankruptcy in order to make sure that you understand the potential implications – but the following are some of the most serious effects.

• You will lose control of your assets. You may also lose assets that you receive during the bankruptcy – for example property that you are given in a will.
• You will have to tell a potential lender that you are bankrupt if you want to borrow more than £500.
• You cannot act as a company director, or manage or promote any business without the express permission of the court. If you are a sole trader your business is likely to be wound up.
• The bankruptcy will remain on your credit history for at least six years. This will make it difficult to get credit.
• Depending on your profession, you may have to relinquish a licence to practise.
• The stress of bankruptcy could have a negative impact on your personal relationships

It is important to understand that bankruptcy is a legal process and, as such, legal restrictions are placed on your behaviour while you are bankrupt. Breaking these restrictions can have severe consequences, including prison.

13. How long does it last?

A bankruptcy will normally last for 12 months following the date of the bankruptcy order. After this, the restrictions will end – but an IPO or IPA might continue, and the bankruptcy will remain on your credit history. Furthermore, assets that were under the Trustee’s control could still be sold after your discharge.

There are circumstances in which bankruptcy restrictions could last longer than 12 months. If you do not cooperate with the Official Receiver, or if the Official Receiver reports that you bankruptcy was caused by dishonest or reckless behaviour, the court can be asked to extend the restrictions. This might occur if, for example, you have been made bankrupt more than once in six years, or if you took on debts knowing that you would be unable to make the repayments.

14. Are all my debts written off?

After your bankruptcy is discharged, you will be freed from most of your debts. There are, however, some exceptions to this. These include:

• Student loans
• Child Support Agency payments
• Any debts that you took on after the date of the bankruptcy order
• Any debts that you incurred as a result of fraud.

15. Where can I get more information?

Read the information on this site to get a clear picture of how bankruptcy will affect your life and your future - and to understand some of the terms you might come across during the process. Your local Citizens Advice Bureau can help you to understand whether or not bankruptcy is the right option for you, and may be able to offer advice on dealing with your debt. General guidance (but not personal advice) is available from the Insolvency Service, which is legally charged with administering and investigating bankruptcies. Regardless of who you choose to speak to, you should make sure that you have explained your situation to a qualified individual before beginning the bankruptcy process.

If you do decide bankruptcy is the next step for you, we hope you will be able to use this site as reference point to come back to time and again.