Guidance

Guide to Bankruptcy

Updated 21 April 2017

1. What bankruptcy means

Bankruptcy is one way for individuals to deal with debts they can’t pay. It doesn’t apply to companies or partnerships.

The bankruptcy process:

• makes sure your assets are shared among those you owe money to (creditors)
• lets you make a fresh start free from debt (with some restrictions)

Becoming bankrupt is not the only way to deal with debt, look at the other options and seek debt advice before applying for bankruptcy.

2. Who can be made bankrupt

A bankruptcy order can be made for one of three reasons:

• you can’t pay what you owe and want to declare yourself bankrupt
• your creditors apply to make you bankrupt because you owe them £5000 or more
• an insolvency practitioner makes you bankrupt because you’ve broken the terms of an individual voluntary arrangement (IVA)

2.1 If you don’t live in England or Wales

You can declare yourself bankrupt in England or Wales if you live outside the EU or in Denmark.

You can’t declare yourself bankrupt in England or Wales if you live somewhere else in the EU, Scotlandor Northern Ireland.

3. Costs

It costs £680 to apply to become bankrupt.

If you owe less than £20,000 and have no assets you may be able to get a Debt Relief Order (DRO).

The cost of a DRO is £90.

4. The process

4.1 The application

You can apply to make yourself bankrupt online.

If someone else has applied to make you bankrupt you’ll get a copy of the petition so you’re aware of the situation. You can ask the court not to make you bankrupt but you will most likely need to pay the debt or prove to the court that you don’t owe the money.

4.2 When the bankruptcy order is made

The early stages of a bankruptcy are normally handled by an official receiver. An official receiver works for the Insolvency Service and is attached to the court. They will also be your trustee unless an insolvency practitioner is appointed to take over that role. The trustee will realise (sell) any assets (except any reasonable domestic items and items needed for your job).

The official receiver will write to you within 2 weeks of the bankruptcy order being made, explaining what you need to know and what you must do.

4.3 Your responsibilities when a bankruptcy order is made

You must:

• give the official receiver information on your finances
• give the official receiver a full list of your assets
• tell your trustee about any rise in income during your bankruptcy
• tell anyone who offers to loan you over £500 that you’re bankrupt
• go to court to explain why you owe money if asked to do so

There are also things you can’t do while bankrupt. These are called restrictions.

4.4 Your interview with the official receiver

If your bankruptcy is approved, you’ll have an interview with the official receiver. If you’ve presented your own bankruptcy petition, this may happen directly after the bankruptcy order is made. Alternatively, your letter from the official receiver may invite you to an interview either in person or by telephone. If offered a telephone interview you can ask to be interviewed in person if you prefer.

If you have been made bankrupt by one of your creditors the official receiver may also contact you by telephone to find out if there is anything that needs to be sorted out urgently.

You must attend the interview and cooperate with the official receiver. If you don’t, your bankruptcy could be extended beyond the normal 12 months and you could face an examination in court. The more organised you are, the more straightforward the process will be.

Before the interview, telephone the official receiver to confirm or rearrange the appointment; let them know if:

• you require special facilities
• there is anything that needs to be sorted out urgently
• you need more time to gather the paperwork for the meeting

If you have been sent a questionnaire, fill it in, noting anything you don’t understand (if you are having a telephone interview, return it by the date given).

Collect together all the paperwork you have been asked to take to the interview or have with you during the telephone call.

Face-to-face interviews may take 2 to 3 hours.

After you arrive:

• you’ll be seen in a private room no later than 5 minutes after the appointment time
• your questionnaire will be checked or you’ll be asked to fill one in
• you’ll be interviewed by an insolvency specialist (an examiner) about the circumstances that led to your bankruptcy
• you’ll hand over all your financial records and papers which will be examined and recorded either there and then or at a later date, and will be kept by the official receiver
• you’ll have a chance to ask questions about the bankruptcy process

Telephone interviews take at least 30 minutes.

The examiner will:

• check the information in the questionnaire if you have been asked to complete one
• ask anything else they need to about your assets and debts, and about the circumstances that led to your bankruptcy
• deal with any queries you have
• tell you if you need to supply further information

If you can’t provide all the necessary information or the examiner needs more time to complete their enquiries, you may be asked to another appointment.

After the interview, the official receiver will send a report to your creditors showing your assets and debts. This usually takes less than 8 weeks, though it can take up to 12 weeks.

They will also report to the insolvency Service if they think you may have broken the law in your financial dealings.

4.5 How your creditors are paid

The official receiver will take control of your assets unless an insolvency practitioner is appointed by the creditors. An insolvency practitioner is usually an accountant or solicitor and will be used when you have significant assets.

The person who takes control of your assets is known as the ‘trustee’. The law says you must cooperate fully with them.

The trustee will sell your assets and tell the creditors how the money will be shared. Creditors must then make a formal claim. You can’t make payments directly.

Your trustee can put an advertisement in a newspaper asking creditors to submit claims.

If you have assets, money from the sale of these will be used to pay the costs of the bankruptcy process before creditors are paid. If your case is administered by the official receiver the following fees will all be deducted from the money realised:

• an administration fee of £1,990 if you applied for your own bankruptcy or £2,775 if someone else applied
• a general fee of £6,000
• 15% of the total value of assets realised
• a fee charged at an hourly rate where money is paid to creditors (known as a ‘distribution’ fee)

If there are insufficient assets in your case the official receiver will still process your bankruptcy.

Next, money will be used for:

• certain debts in relation to employees, if you had any
• your other creditors
• interest on all debts

Any money left over will be returned to you. If everyone is paid in full (including the fees referred to above and interest on the debts) you can apply to have your bankruptcy cancelled (annulled).

If your bankruptcy is being handled by an insolvency practitioner then the administration and the general fees will still be charged, but they will charge their own schedule of fees rather than the asset realisation and distribution fees that the official receiver would charge. You should ask them how much it will cost to administer your case.

4.6 Exceptions to payment rules

There are some exceptions to the payment rules. You can make direct payments for:

• secured creditors, like a mortgage lender
• debts which are not included in the bankruptcy (like court fines, maintenance payments and student loans), these are called “non-provable debts”
• money owed after 19 March 2012 to the Department for Work and Pensions for budgeting or crisis loans

You must keep paying rent and any new debts after the bankruptcy. You may not need to pay bills that are unpaid at the date of your bankruptcy order. You may have to pay a deposit for future supplies of gas, electricity or other utilities. Or your utility accounts may be transferred to a spouse or partner.

5. What happens to your assets

You’ll need to give your assets to the trustee.

Assets you can keep include:

• items needed for work
• everyday household items (eg, clothing and furniture)

If these items are valuable they can be taken by the trustee and replaced with a cheaper alternative.

5.1 What happens to your home

If you own your home it can be sold if it is the only way to pay your creditors.

Sole owners

If you’re the only owner of the property:

• the value of the property after any secured debts (eg, a mortgage) have been paid transfers to the trustee. This is known as the ‘beneficial interest’ and is sometimes called equity
• the legal title transfers to the trustee and a bankruptcy restriction is added to the land registry record. This will stop you from selling your home or making deals connected to it

The restriction will be removed once the trustee has been paid for their interest in the property.

Joint owners

If you own the property with someone else:

• your share of the property after any secured debts (eg, a mortgage) have been paid transfers to your trustee. This is known as the ‘beneficial interest’
• a ‘Form J restriction’ is added to your Land Registry record and the trustee will be told of any deals affecting the property, including a sale

You can still sell the property, but the trustee will get your share of the money from the sale. The Form J restriction will be removed once the trustee has been paid this money.

The sale of your home

The trustee can’t usually sell the property without your agreement for a year from the date of the bankruptcy order if you have a partner or children living with you.

You can stop a sale taking place later if a family member or friend buys the beneficial interest in your home. The buyer should contact the trustee.

There’s a 3-year time limit for selling the family home from the date of the bankruptcy order. If your beneficial interest is less than £1,000 at the end of this period no action will be taken and the interest will return to you. The restriction at Land Registry will be removed.

If your beneficial interest is more than £1,000 the trustee can sell the property or apply for a ‘charging order’ as an alternative to a sale. A charging order fixes the amount the trustee will get from the property when it is sold.

A ‘family home’ is any property you, your spouse/civil partner or former spouse/civil partner is living in at the date of the bankruptcy order. If you co-habited with your partner and have now separated, the property that they and/or your children live in is not a family home.

If you fall behind with your mortgage payments, your lender may sell your home.

Rented property

Bankruptcy is unlikely to affect your rental situation if you are up-to-date with your rent but it’s a good idea to seek legal advice on what will happen under your tenancy. If you are behind with your rent your landlord can still apply to evict you even if the rent arrears are included in the bankruptcy.

5.2 What happens to your bank account

When the bankruptcy order is made, you must:

• make sure you don’t use your bank account
• give your cards and cheque books to the trustee

Your bank account will be frozen. Any money in your account will be an asset and claimed by the trustee. The trustee can ask to release some money:

• for your daily living needs
• to the other person in a joint account

The bank is allowed to use money from one of your accounts to pay your debts on another account you hold with them. This is called ‘set off’.

Otherwise, money owed to the bank (eg, if you’re overdrawn) is a bankruptcy debt, so you can’t pay this to the bank directly. The exception is if the bank has a charge on your home (security for payment of a loan like a mortgage).

Open a new account

You can open a new bank account after the date of the bankruptcy order but you must tell the bank or building society that you’re bankrupt. Some banks will let you use your old account after they’ve spoken to the trustee.

5.3 What happens to your pension

Most pension schemes aren’t included in your bankruptcy (for bankruptcy orders made after 29 May 2000) and they can’t be claimed by the trustee.

The pension scheme must be a UK state pension scheme or a scheme approved or registered by HM Revenue & Customs. Approved or registered pension schemes are usually:

• occupational (employers) pension schemes approved for tax purposes
• personal pensions approved for tax purposes
• stakeholder pensions
• retirement annuity contracts

If your pension scheme is not an approved or registered scheme you may be able to exclude it from your bankruptcy by:

• applying to the court for an ‘exclusion order’, or
• making a qualifying agreement (an understanding with the trustee that the pension should be excluded)

If your pension is part of the bankruptcy, it can be used to make payments to your creditors.

Pension Payments

Payments made to you from your pension scheme, including any lump sums, before the end of your bankruptcy can be used as part of an Income Payments Agreement (IPA) or Income Payments Order (IPO). This will involve you paying some of your debt with your income.

If you are able to take money from your pension following changes to the law in April 2015, but have chosen not to do so, the trustee may look at the value of your available pension fund. If this would give you access to enough money to make a different arrangement to pay your creditors, the trustee can ask the court to cancel (annul) the bankruptcy.

Death benefits

If you die while bankrupt the trustee will claim any death benefit, usually a lump sum payable from the pension, where a person hasn’t already been nominated to receive the benefit. If a person has been nominated within the pension scheme to receive the death benefit, it will still be paid to them.

Bankruptcies before May 2000

If you were made bankrupt before May 2000 your pension funds transferred to the trustee. The pension is no longer available to you, but you may receive money from the fund once the trustee has paid the creditors who claimed in your bankruptcy.

5.4 What happens to your motor vehicle

Your motor vehicle will be sold to pay for your bankruptcy debts, unless you need it:

• for your work or vocation (eg, if you are the main carer for a disabled relative)
• to meet basic domestic needs where alternative transport is not practical

If the official receiver agrees you need the vehicle, it will be classed as ‘exempt’ and not included in your bankruptcy. This does not apply if you own your vehicle through an ongoing hire purchase agreement (see ‘vehicles under finance agreement’).

If you are allowed to keep the vehicle you remain responsible for road tax, MOT and insurance.

If your vehicle is exempt but valuable it can be replaced with a cheaper alternative. The official receiver will use the money from the sale to either pay for the new vehicle directly or give you the money to buy one. You must provide proof of purchase for your new vehicle within 1 month. The guide price for a replacement is £1,000.

Stop the sale of your vehicle

If your vehicle is not exempt you may be able to keep it if a third party can pay to transfer it to them for you and you provide a:

• current insurance certificate
• vehicle registration document
• a valid MOT

The price paid will be the market value of the vehicle but must at least cover the agent’s costs for the sale of the vehicle.

If you don’t want to keep the vehicle the official receiver will dispose of it.

Vehicles under finance agreements

A finance agreement can be a:

• hire purchase
• conditional sale
• leasing agreement

A vehicle under a finance agreement cannot be exempt from your bankruptcy. The trustee will review your financial agreement to see if there is a benefit in claiming the vehicle for the estate.

If the trustee decides they won’t be claiming the vehicle they will give notice to you and the finance company.

The finance company may decide to take back the vehicle when you become bankrupt. It may let another person take over your agreement if your payments are up to date. If someone else has already made payments for you, they’ll become a creditor in your bankruptcy.

Motability vehicles

If you have a Motability vehicle on lease, it’s up to Motability if you keep it. You’ll need to keep up payments using your disability living allowance or personal independence payment.

Personal number plates

The registration number will be valued. The official receiver may take an offer from a third party to buy the number to let you keep it.

Vehicle registration

If you’re registered as the current keeper of the vehicle the trustee will treat the vehicle as yours even if you didn’t buy it. It is for you and the person who bought the vehicle to prove the vehicle was not a gift.

5.5 What happens to your credit rating

Your bankruptcy will stay on your credit file for 6 years after the bankruptcy order is made. You should check if the entry has been removed after 6 years.

The 3 main UK credit agencies are Callcredit, Equifax and Experian.

5.6 What happens to your business

If you’re self-employed, your business will be closed. Any business assets will be claimed by the trustee.

Your employees may make a claim for unpaid wages and holiday pay, payment in place of notice, and redundancy. They’ll make this claim to the National Insurance Fund, or the money may be claimed in the bankruptcy process.

You can start trading again, but you’ll have to follow certain rules.

5.7 What happens to work registrations and permissions

To find out if a registration, licence or permission for your work will still be valid, contact the person who issued it. Any transfer value may belong to the trustee.

5.8 What happens to your life assurance policy

Your interest in the policy benefits will transfer to the trustee. They may sell or surrender the policy to collect money for your creditors. If you want to keep the policy, you may be able to work out a solution with the trustee.

6. Payments from your income

If you can afford it, the trustee will ask you to make regular payments towards your debts from your income through an income payment agreement (IPA). You enter an IPA voluntarily, but there’s a written binding agreement between you and the trustee.

If your main or only income is state benefits, the trustee will not normally try to get an IPA.

If you can’t agree on payment amounts for an IPA, the trustee can apply for an income payment order (IPO). If you don’t meet these payments, the trustee can then apply to extend your bankruptcy.

The payments will come from ‘surplus income’ (also known as real disposable income).This is money you have left after paying your living expenses. Normally you will have to pay all of this surplus income as your IPA payment.

Payments normally last for 3 years (longer than the period of bankruptcy itself). The court won’t make an IPO if it leaves you without enough money to meet everyday needs.

A fee will be charged in all bankruptcy cases where an IPA or IPO is set up. The fee is set at £150 which will cover the specific costs incurred by the Official Receiver of arranging and setting up your IPA / IPO and will be collected from the first payments you make into the arrangement. This fee is only chargeable on cases where a bankruptcy application was made or a petition presented on or after the 21 July 2016.

6.1 Your living expenses

You must give details of your income and spending in:

• your statement of affairs - if you’ve applied for your own bankruptcy
• the preliminary information questionnaire - if someone else has made you bankrupt

You’ll have to provide proof of income and spending and details of your spouse or partner’s income.

Normal monthly expenses are costs like rent, a mortgage, bills, food and clothing for you and your family (everyone who lives with you and depends on you). Your reasonable domestic needs may also include:

• house insurance
• mobile phone charges
• vehicle expenses (if the trustee allows you to keep your car)
• dry cleaning
• prescriptions, dental treatment and opticians
• membership of a professional body for your job

This is not a complete list and other expenses may be considered.

6.2 Suspended income tax payments

HMRC will apply a ‘nil tax code’ (NT) when you’re bankrupt. This tells your employer not to take any further income tax from your wages for the rest of the tax year (ending on 5 April). The extra money in your pay that results from this can be claimed by the trustee to form part or all of an IPA or IPO. If the IPA or IPO is wholly paid out of this extra income, it will stop when you start paying tax again.

The NT won’t tell your employer you’re bankrupt as an NT can be applied for a number of reasons.

6.3 Changes in your income and lump sums

The IPA or IPO can be updated if your income changes. You must contact your trustee immediately if this happens; they can decide to reduce or increase your payments.

If you get a lump sum while you’re paying an IPA or IPO, you may be asked to make a one-off payment from it.

6.4 Missed payments

If you don’t make your payment, the trustee can:

• arrange for you to pay a bit later if your problems are temporary
• reduce or stop your payments if your income has gone down (you must tell the trustee if your income goes back up)
• ask the court to take the money directly from your wages if you don’t meet your payments
• suspend your discharge from bankruptcy, making you bankrupt for longer
• take other legal action to recover the money

7. When your bankruptcy will end

You will be freed from bankruptcy (discharged) after 12 months. This ends the bankruptcy restrictions and releases you from most of the debts you had when the bankruptcy order was made.

You’ll normally be discharged automatically, even if:

• no payments have been made to your creditors
• you’re still paying an IPA or IPO
• some assets haven’t been sold yet

Assets you had during bankruptcy can still be used to pay your debts once your bankruptcy has ended.

Your bankruptcy can be extended for longer than 12 months if you don’t co-operate with your trustee. Check your discharge date using the Individual Insolvency Register on our website. If your discharge status is “suspended indefinitely” you need to contact the official receiver for an update.

7.1 Proof of discharge

You won’t automatically be sent a letter saying you’ve been discharged. To get proof:

• if the court made you bankrupt, you can ask the court for a Certificate of Discharge (£70, then £10 for extra copies)
• if you applied for your own bankruptcy using the online system and your case was handled by the Adjudicator (after 6 April 2016), you can email discharge queries for a Certificate of Discharge (no fee)
• in either case, email discharge queries for a confirmation letter (no fee)

Don’t ask for proof before the discharge date. If emailing discharge queries, include your full name, date of birth, current and previous address, national insurance number and bankruptcy or court reference number. If you do not have access to email you can make a request by calling 0300 6780015 (select option 3 followed by option 5).

7.2 What happens to your debts

You’ll be freed from your debts once your bankruptcy has ended, except for:

• debts gained by fraud
• money owed under family proceedings (maintenance and lump sum settlements)
• damages payable to anyone for personal injuries
• student loans
• court fines
• debts created after the bankruptcy order

7.3 What happens to your assets after discharge

Assets that are part of the bankruptcy stay under the trustee’s control when your bankruptcy ends. It can take time for all assets to be dealt with.

You must keep making any payments agreed under an IPA or IPO.

Your family home

If your family home has not been dealt with 3 years after the bankruptcy order, the interest may be given back to you.

If the interest in your family home is returned to you, the Land Registry will be told that the property is no longer part of your bankruptcy estate. The trustee will send notice to the Land Registry and the restrictions will be removed.

Your business

The restrictions on your business end when bankruptcy ends, unless the official receiver feels you’ve been dishonest. They can then apply to extend the restrictions

7.4 What happens to your public records after discharge

You will be removed from the Individual Insolvency Register within 3 months of your discharge.

7.5 What happens to your credit rating after discharge

The official receiver won’t tell the credit agencies when your bankruptcy ends. You may need to ask the credit agencies to update their records to include details of your discharge.

The bankruptcy can stay on your record for 6 years after the date of the bankruptcy order.

Read more on this in the Information Commissioner’s Office ‘Credit explained’ document.

8. Cancelling your bankruptcy (annulment)

You can apply for your bankruptcy to be cancelled (annulled) if:

• the bankruptcy order shouldn’t have been made
• all your debts and bankruptcy fees have been paid or secured (guaranteed) by a third party
• you‘ve made an IVA with your creditors to pay all or part of your debts

You should consider seeking independent financial advice about your options – contact a debt adviser.

An IVA is a binding agreement between you and your creditors to pay all or part of what you owe them. As an alternative to bankruptcy you can enter an IVA before a bankruptcy order is made to avoid bankruptcy, or propose an IVA after a bankruptcy order has been made.

To annul your bankruptcy you need to:

• make an application to the Court under the Insolvency (England and Wales) Rules 2016
• include on your application the details specified in rule 1.35 and rule 10.132
• pay a fee of £155 to the court
• provide a witness statement explaining the reason for your application

The court will set a date for your hearing, which you must attend.

Also send copies of your application and witness statement, with the hearing date, to:

• the person who applied for your bankruptcy (if your reason for annulment is that the order shouldn’t have been made)
• the official receiver, and
• the trustee (if different)

8.1 How annulment will affect you

When an annulment is made you’ll return to your pre-bankruptcy status. Any sale of your property and assets will remain valid, but your unsold assets will be returned. You’ll still have to pay any debts not paid in your bankruptcy.

8.2 The Individual Insolvency Register on annulment

Once notice of the annulment is received your bankruptcy will be removed from the Individual Insolvency Register after:

• 28 days if the bankruptcy order shouldn’t have been made
• 3 months if the debts were paid in full or an IVA has been agreed

If an IVA has been agreed, details of this will appear on the register.

8.3 Your public records on annulment

You’ll need to check the details of the bankruptcy are removed from your credit record. If an IVA has been agreed, this will be put on your file.

You will need to apply to both Land Charges and Land Registry to have your bankruptcy entry removed from any properties you still own after paying your debts. If you don’t, the entries will remain for 5 years.

8.4 Land Charges

Fill in a form for cancelling the bankruptcy entry for Land Charges.

You need to include:

• a copy of your court order permitting the cancellation (or ‘vacation’) of the entry
• £1 for each entry you want to cancel

Post to:

Land Charges Department
Seaton Court
2 William Prance Road
Plymouth
PL6 5WS

8.5 Land Registry

You need to send Land Registry either:

• an application to change the register for a property, if you’re the sole owner of your property, or
• an application for the cancellation of a Form J restriction, if you own your property with someone else

You must include a copy of your court order.

Send it to:

Land Registry Bankruptcy Unit
Seaton Court
2 William Prance Road
Plymouth
PL6 5WS

9. Advertising your bankruptcy

The official receiver will put your bankruptcy in the Gazette, which publishes legal notices and provides a permanent public record of your bankruptcy. They may also advertise it in other ways. You can get a court order to stop this by calling the court and asking for a ‘stay of advertisement’. You must tell the official receiver you have done this.

You can ask the official receiver to put your discharge or annulment in the Gazette. You need to provide a copy of your Certificate of Discharge or order of annulment from the court and make the request within 28 days of the date the certificate is issued or the order is annulled.

10. Bankruptcy and transgender

The Gender Recognition Act says that individuals will commit an offence if they disclose a gender change wrongfully to others.

For bankruptcy, disclosure is allowed if it’s:

• made by or to an official receiver or insolvency practitioner
• needed for the official receiver to carry out their role
• made by someone who knows you have a gender change certificate, and the information is included in the disclosure

The trustee will decide whether your previous gender needs to be disclosed as part of your bankruptcy. They’ll disclose the information if:

• it’s needed to protect or recover assets
• it’ll help creditors identify debts due to them

10.1 Your responsibilities

You must include your previous name on your bankruptcy petition if you had the name in the past 5 years and:

• owned assets
• owed money
• had financial or business dealings

Otherwise, you need to tell the official receiver that all your debts, assets and financial dealings are in your new name.

If someone else has made a bankruptcy petition against you but not noted your gender change, you must tell the official receiver.

10.2 New circumstances

If your situation changes this may affect your case. Tell the official receiver if:

• a bankruptcy order was made in your previous name but you now have financial dealings under a new name
• you’re in the process of changing gender when made bankrupt and have financial dealings in your new name
• you change your gender while still bankrupt

It could be an offence under insolvency law if you don’t tell the official receiver about your gender change.

10.3 What happens to your information

Any previous name included in the bankruptcy petition will appear on the bankruptcy order, and in the:

• notice of your bankruptcy, which is permanently recorded in the Gazette but excluded from search engine results one year and three months after publication
• Individual Insolvency Register which will be removed within three months of your discharge

10.4 Wrongful disclosure of previous gender

If you think the official receiver has wrongfully disclosed your previous gender you can follow our complaints procedure.

11. How to complain

If you want to complain about the official receiver, read our Complaints Procedure

If you want to complain about the insolvency practitioner, use the online form

12. How we use and collect information

Find out more about how we use information in our Personal Information Charter.