Bankruptcy Advice: Should I declare myself bankrupt?

If you’re looking for expert bankruptcy advice, this in-depth guide will provide you with everything you need to know about bankruptcy and whether it’s the right move for you or your business.

Bankruptcy is a formal legal procedure that can help insolvent individuals erase major debts while providing them with the opportunity for a fresh financial start.

However, bankruptcy also has serious and often long-lasting consequences to consider, so it’s important to seek personal bankruptcy advice before going down this route.

Bankruptcy Advice for Individuals

If you’re struggling to pay your bills and have creditors chasing you for missed payments, then bankruptcy is one option to consider. Overseen by the UK’s Insolvency Service, this is a legal procedure that any insolvent individual can file for, although it’s generally only ever used as a last resort.

An insolvent individual can voluntarily file for bankruptcy with the Insolvency Service, but individuals that owe more than £5,000 can be forced into bankruptcy by their creditors. Filing for bankruptcy costs £680, and can be done online. Your case will be assessed and, if approved, you will become an ‘undischarged bankrupt’ for 12 months.

Here’s a timeline of the bankruptcy process:

  1. An individual becomes insolvent, and files for bankruptcy or has this filed on their behalf by creditors.
  2. The Insolvency Service assesses your case and notifies you of their decision within 28 days.
  3. An official receiver will be appointed to oversee the terms of your bankruptcy order. They take control of your accounts and finances, and place you on the bankruptcy register.
  4. Your bankruptcy order lasts for 12 months, during which time you have to abide by the terms of the order.
  5. At the end of the 12-month term, you are generally discharged from the bankruptcy order.
  6. Bankruptcy remains on your credit score for a further six years.

What Are the Results of Filing for Bankruptcy?

The primary goal of bankruptcy is to eliminate large debts and, ultimately, to provide you with the opportunity for a fresh financial start. These are the major positives of bankruptcy, but there are many other serious consequences to consider too.

The terms of a bankruptcy order depend on a number of factors, including the value of your assets, your income, and your ability to repay your creditors. If you file for bankruptcy, you can expect the following to happen:

  • Major debts are written off if unpaid after 12 months.
  • You are declared to be an ‘undischarged bankrupt’ for 12 months and must stick to the terms of your bankruptcy order.
  • Your bank accounts are frozen or closed and your finances are taken over by the official receiver for 12 months.
  • For 12 months, you can’t secure any more than £500 in credit.
  • You can no longer be chased by creditors demanding payments.
  • You will continue to pay certain personal debts, including student loans and child support.
  • You may lose your house and other high-value assets, which can be sold to pay your creditors.
  • If you are a tenant, your landlord may evict you from your home.
  • Your business can be sold to pay your debts, and any employees may lose their jobs.
  • If you have an income, then you may be forced to repay a percentage of this as part of an income payment order for up to three years.
  • Bankruptcy stays on your credit rating for six years, making it difficult to secure loans.
  • Your bankruptcy is public knowledge and it may affect your standing in the community.
  • If you are a Member of Parliament, a charity trustee or a lawyer, you can lose your job.

Given the potential negative consequences of the process, it’s important to ask for bankruptcy advice from a licensed insolvency practitioner before filing. While bankruptcy can remove large debts, it also makes it very difficult to secure any form of credit – including credit cards and mortgages – for at least six years. Any loans you do secure will inevitably be subject to high-interest rates and strict repayment terms. Even after this, you legally have to declare that you have been bankrupt in the past if directly asked by potential creditors.

Is Bankruptcy the Best Option for You?

If you’re in need of personal bankruptcy advice, it’s likely that you’re wondering whether or not bankruptcy is the best option for you. Everyone is in a unique personal and financial position, and so every case needs to be taken on an individual basis.

As a general rule, bankruptcy should only be taken as a last resort. While it can wipe your debts out, the negative consequences of bankruptcy are not to be taken lightly. There are several alternatives to bankruptcy that an insolvency practitioner may recommend first, including:

  • Debt consolidation plans
  • Administration orders
  • Individual voluntary arrangements.

In certain circumstances, bankruptcy may be the best option for you. This could be the case if:

  • You owe large sums of money (above £20,000)
  • You have very few assets to lose
  • You have exhausted all other personal insolvency options

Bankruptcy Advice for Businesses

It’s important to remember that in the United Kingdom, bankruptcy is an insolvency tool that can only be used by individuals in financial difficulties. Businesses, companies and corporations cannot file for bankruptcy in the UK.

There can be some confusion in this respect, because in the United States, businesses and corporations are treated differently, and they can file for bankruptcy. In the UK, however, businesses can only become insolvent, and they must use other insolvency tools when facing financial difficulties.

Irwin Insolvency can also provide expert insolvency advice for businesses, and we may recommend one of the following if your company is struggling to pay its bills:

  • Company voluntary arrangements (CVA)
  • Administration
  • Corporate restructuring/business turnaround
  • Creditors’ voluntary liquidation

Contact Irwin Insolvency for More Bankruptcy Advice

Irwin Insolvency has over 25 years’ experience providing expert bankruptcy advice to struggling individuals and businesses.

Our expert team of insolvency practitioners has the experience and knowledge you need to decide if bankruptcy is the correct step forward for you.

If you need to know more about bankruptcy, contact Irwin Insolvency today for more information.

Contact Irwin Insolvency today for your free consultation

Call us
0800 254 5122

About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency,
 rescue and turnaround.