Checklist - is bankruptcy right for you?
Bankruptcy can help you become free of debts but it isn't the right option for everyone. It's important to understand how it will affect your day-to-day life and to explore the alternatives.
Bankruptcy explainedIf you want more information about what bankruptcy is and how it works, see Bankruptcy - what you need to know.
When bankruptcy might be right for you
Bankruptcy might be suitable for you if all of the following apply:
- you can't see a way to pay your debts
- you don't have many belongings of value and there's little or no equity in your home
- it's unlikely that your situation will improve
- you live or carry out a business in England or Wales, or have done so at any point in the last 3 years and don't live permanently in another European state (apart from Denmark)
There isn't a minimum amount of debt you need to be eligible. If your unsecured debts total more than the things of value you own, then bankruptcy is an option for you. Unsecured debts include things like credit cards, personal loans and store cards.
When bankruptcy might not be right for you
Bankruptcy might not be suitable for you if any of the following apply:
- you work in certain occupations such as solicitor, accountant or estate agent, as your professional association might bar bankrupt people from membership
- you don't want your debt problems to be public
- your circumstances might change in the near future - for example, if you're going to inherit money or you're expecting a compensation payment, it might be better to use this to deal with your debts
- you have access to a pension pot that's bigger than your debt - you might not be allowed to become bankrupt
If you go bankrupt any EU pension pots could be taken by the official receiver to pay debts. If this affects you get financial advice.
Your financial behaviour
The official receiver has the power to investigate your financial behaviour before and after your bankruptcy order is made. If you've done anything they think is dishonest or reckless they could get a ‘bankruptcy restrictions order’ against you. Or if they think you've committed a 'bankruptcy offence', you could be fined or sent to prison. Before you consider bankruptcy, check what counts as a bankruptcy offence.
If you're considering bankruptcy, you'll need expert advice. Contact your nearest Citizens Advice for advice about your debt problems and bankruptcy.
If you owe money to people or companies in the EU
Bankruptcy might not be right for you if you owe money to people or businesses in the EU. These debts 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. If you own a property in the EU, creditors with debt secured on the property, for example a mortgage lender, could take action 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.
Get legal advice if you have creditors in the EU. Find free or affordable legal help.
Other things to think about
Going bankrupt could have a big impact on your life, so it's important you think about how it will affect you.
Cost of bankruptcy
Going bankrupt costs £680. You need to make sure you can afford to go bankrupt.
- More about the cost of going bankrupt.
If your income is high enough, you could be asked to make contributions towards your bankruptcy debts. This is called an income payments agreement (IPA). If you don't agree to this, the court could make an income payments order (IPO) to force you to pay. Find out more about income payment agreements.
If you own your home, it might be sold and the proceeds used to pay your creditors.
If you rent your home, you could lose it if your tenancy agreement says that you can't rent the home if you're bankrupt. You might find it harder to find a new home to rent.
- More about the impact of bankruptcy on your home.
Access to credit
While you're bankrupt you can't borrow more than £500 without telling the creditor about your bankruptcy.
Bankruptcy will have a serious impact on your credit rating. This could make running a business, getting a mortgage or getting other credit very difficult for a long time.
- More about the impact of bankruptcy on your credit rating.
If you have any belongings, apart from basic household goods and things you need for work, they might be sold and the proceeds used towards paying your creditors.
- More about the impact of bankruptcy on your belongings
Your bank account, savings and pension
Your bank account will usually be frozen as soon as you’re made bankrupt. You’ll need to make sure you have some money set aside to cover day to day costs at the beginning of your bankruptcy. Any savings you have will be taken and used towards paying your creditors.
If you have any pensions, bankruptcy might affect your pension savings. Pensions are a complex area so before you decide to apply it’s important to get advice.
- More about the impact of bankruptcy on your bank account, savings and pension.
Your job or business
Check the terms of your contract of employment carefully to see if it says you have to tell your employer if you go bankrupt. This is particularly likely if you work in a financial organisation or role and your job could be at risk if you go bankrupt.
If you run a business while you’re bankrupt you can only trade in the business name that you used on the date of the bankruptcy order. You can’t usually run a company or be a company director whilst you’re bankrupt.
- More about the impact of bankruptcy on your job or business.
Dealing with debts not covered by bankruptcy
While bankruptcy will clear many types of debt, there are some that are excluded, including magistrates court fines and student loans. If you owe any debts that are excluded, the people you owe these debts to can continue to chase you and take action to get their money back during your bankruptcy period. You therefore need to make sure you know which debts your bankruptcy won't cover and work out how you'll pay them back.
Bankruptcy will be public knowledge
If you go bankrupt, it will be recorded in public records that anyone can access. If you, or a member of your family that you live with, would be at risk of violence if your details were published, you can ask the court to order that this doesn't happen.
British citizenship applications and immigration status
Being declared bankrupt could have an impact on your immigration status or any application you're making for British nationality. You should make sure you understand how it might impact you before you go ahead with a bankruptcy application.
- More about the impact of bankruptcy on applications for British Citizenship or your immigration status
Alternatives to bankruptcy
If you’re not sure if bankruptcy is right for you there are other ways to deal with your debts. The main alternatives to bankruptcy are:
- debt relief order - this might be appropriate if your debts total less than £20,000, you have less than £50 a month available to pay your creditors, you are not a homeowner, and any belongings you own (apart from basic household goods and a vehicle worth less than £1,000) are not worth more than £1,000 in total
- individual voluntary arrangement - this might be appropriate if you've got at least £100 you could put towards paying your debts each month and want to pay off your debts over a fixed period of time
- administration order - this might be appropriate if the total of your unsecured debts is less than £5,000 and you've got a county court judgment for debt
- If you're sure you want to go bankrupt, find out how to apply for bankruptcy
- If bankruptcy isn't for you, find out how to get help with your debts
- If you need more help