Bankruptcy is a formal insolvency process for someone who cannot pay their debts. It can be applied for online in England and Wales, usually ends most qualifying debts, and the person is normally discharged after around twelve months.
In one line: Bankruptcy is a formal insolvency that clears most debts, with discharge usually after about twelve months.
How bankruptcy works
A person can apply for their own bankruptcy online through the adjudicator service, and an application fee applies. Creditors can also petition the court to make someone bankrupt over an unpaid debt.
Once a bankruptcy order is made, an official receiver takes control of assets and dealings, and most qualifying debts are written off on discharge, which normally happens automatically after twelve months.
Assets such as a home or car may be sold to pay creditors, and where there is spare income an income payments arrangement can require contributions for up to three years.
Bankruptcy vs IVA vs DRO
Bankruptcy clears most debts but can involve selling assets. An IVA repays part of the debt over time and may protect assets, while a Debt Relief Order suits low debts with little income and few assets.
Bankruptcy is recorded on the Individual Insolvency Register and the credit file for six years, and certain restrictions apply while the person remains undischarged.
Primary source: GOV.UK: Apply to become bankrupt