Before You Declare Bankruptcy: What You Lose and What Is Protected

What bankruptcy involves

Bankruptcy is a formal insolvency procedure administered by the Insolvency Service. Application is made online and costs £680 in England and Wales. Once adjudicated, an Official Receiver is appointed and a trustee in bankruptcy realises assets to pay creditors. Bankruptcy discharge typically occurs after 12 months, after which most debt obligations are extinguished, but the bankruptcy appears on the credit file for six years.

The risks most people do not check

Your home is at risk if you have equity. The trustee has three years to deal with your interest in your home. If there is equity, the trustee may seek a sale, a voluntary charge or a payment from a third party to buy out your interest. The family home is not automatically protected in bankruptcy.

Income payments agreements can extend beyond discharge. If you have surplus income above reasonable domestic needs during bankruptcy, you may be required to make payments via an Income Payments Agreement for up to three years. This continues even after the 12-month discharge.

Bankruptcy restrictions can last longer than 12 months. Bankruptcy Restrictions Orders can extend restrictions on credit and certain activities for up to 15 years where the Official Receiver finds misconduct such as reckless spending, fraud or concealing assets.

Some occupations are affected. Bankruptcy restricts certain professional roles including solicitors, accountants, company directors and some financial services roles. Check your employment contract and professional body rules before applying.

What is protected

Basic household goods and clothing, tools necessary for your trade or employment up to a reasonable value, a vehicle necessary for work up to a reasonable value, and pension funds are generally protected from the trustee. The specific protections depend on the circumstances and the trustee's assessment.

What to verify before applying

Obtain free debt advice from StepChange or National Debtline. Compare bankruptcy against IVA and Debt Relief Orders. Confirm the treatment of your home, pension and any other significant assets before applying. Check employment and professional body implications.

Where to get help

The Insolvency Service provides guidance on the bankruptcy process. Free debt advice from StepChange or Citizens Advice should be obtained before applying.

Frequently asked questions

What is the difference between bankruptcy and a Debt Relief Order?

A Debt Relief Order is available for people with debts under £30,000, assets under £2,000 and surplus income under £75 per month. It costs £90 and provides similar debt relief to bankruptcy without a trustee process. It lasts 12 months. Bankruptcy has no debt or asset limits but costs £680 and involves a trustee.

Can I keep my car in bankruptcy?

A vehicle necessary for work may be retained subject to the trustee's assessment of its value. A vehicle primarily for personal use with significant value may be realised by the trustee. The threshold for retention varies by case.

What happens to my pension in bankruptcy?

Pension funds are generally protected from the trustee in bankruptcy for most pension types. However, pension income already being received may be subject to income payments assessment. Obtain specific advice if you have pension assets.

Can I be a company director while bankrupt?

You are automatically disqualified from acting as a company director while undischarged from bankruptcy. You must resign from any director roles immediately on bankruptcy being adjudicated.

Will my partner be affected by my bankruptcy?

Your bankruptcy does not affect your partner's credit file unless you have joint debts or jointly owned assets. Joint debts remain the liability of both parties. Jointly owned property may be subject to trustee action regarding your share of any equity.