Bankruptcy in the UK: Complete Guide for 2026

What is Bankruptcy?

Bankruptcy is a legal status for individuals who cannot pay their debts. It's a form of insolvency that provides relief from overwhelming debt but comes with significant consequences for your financial future.

In the UK, bankruptcy is a court-supervised process that typically lasts 12 months. During this time, your assets may be sold to pay creditors, and you'll face restrictions on your financial activities. After discharge, most debts are written off, giving you a fresh start.

Types of Bankruptcy in the UK

There are two ways to enter bankruptcy:

• Voluntary bankruptcy: You apply yourself when unable to pay debts (most common)
• Involuntary bankruptcy: A creditor petitions the court if you owe them £5,000 or more

Bankruptcy vs Other Insolvency Solutions

Bankruptcy differs from other debt solutions in several key ways:

How Bankruptcy Works

When you declare bankruptcy, control of your assets passes to an Official Receiver (OR) who acts as trustee of your bankruptcy. The OR's role is to investigate your financial affairs and realise assets to pay creditors.

The Official Receiver's Role

The Official Receiver will:

• Interview you about your financial situation (usually by phone)
• Investigate your financial affairs and conduct
• Decide whether to sell your assets
• Handle your creditors and stop them contacting you
• Distribute money to creditors if assets are sold
• Report any wrongdoing to the court

Income Payment Agreements (IPA)

If you have disposable income over £20 per month after essential expenses, you'll likely need to enter an Income Payment Agreement. This means making monthly payments for up to 3 years, even after discharge.

Bankruptcy Restrictions Order (BRO)

If you've been dishonest or reckless, the OR can apply for a Bankruptcy Restrictions Order extending restrictions for 2-15 years beyond discharge. Common reasons include:

• Gambling or reckless speculation causing bankruptcy
• Giving away assets to avoid paying creditors
• Not cooperating with the Official Receiver
• Taking on debt knowing you couldn't repay it

Bankruptcy Costs and Fees

The total cost of bankruptcy in England and Wales is £680 as of 2026, consisting of:

• Adjudicator fee: £130
• Official Receiver fee: £550

Payment Options

You can pay bankruptcy fees in several ways:

• Lump sum: Pay the full £680 immediately
• Instalments: Pay in instalments over up to 6 months
• Charity help: Some charities may help with fees in exceptional circumstances

Additional Costs to Consider

While £680 covers the application, you may face additional costs:

• Debt advice fees (though free advice is available)
• Document preparation if using a solicitor
• Travel costs for interviews or court hearings
• Potential Income Payment Agreement lasting up to 3 years

Consequences of Bankruptcy

Bankruptcy has serious and long-lasting consequences that affect many aspects of your life. Understanding these is crucial before making your decision.

Financial Consequences

• Credit rating: Bankruptcy stays on your credit file for 6 years
• Bank accounts: Most accounts will be frozen and closed
• Credit applications: You must declare bankruptcy when applying for credit over £500
• Mortgages: Getting a mortgage will be very difficult for several years
• Insurance: Premiums may increase significantly

Professional Consequences

Certain professions prohibit bankrupts from practicing:

• Company directors (without court permission)
• Solicitors and barristers
• Accountants and financial advisers
• Estate agents
• Some positions in local government
• Charity trustees

Personal Consequences

• Public record: Your bankruptcy appears on the Insolvency Register
• Local newspaper: May be advertised in your local paper
• Travel restrictions: Some countries may refuse entry to bankrupts
• Inheritance: Any inheritance during bankruptcy goes to creditors
• Lottery wins: Winnings during bankruptcy must be declared

What Happens to Your Assets

One of the biggest concerns about bankruptcy is losing assets. The Official Receiver will assess all your possessions and decide what must be sold.

Your Home

If you own property, the Official Receiver has three options:

• Sell immediately: If there's significant equity
• Apply for possession order: To sell within 3 years
• Transfer interest: To your partner or a third party who can buy your share

If you rent, bankruptcy doesn't usually affect your tenancy, though some agreements prohibit bankruptcy.

Your Vehicle

You can usually keep a vehicle if:

• It's worth less than £2,000
• You need it for work
• You need it for family care responsibilities

More expensive vehicles will be sold and may be replaced with a cheaper alternative.

Protected Assets

You can keep:

• Essential household items (furniture, bedding, clothing)
• Tools needed for work (up to £2,000 value)
• One vehicle worth under £2,000 if essential
• Reasonable pension savings (though lump sums may be claimed)

Assets at Risk

The OR will likely claim:

• Property with equity
• Expensive vehicles
• Investments and shares
• Valuable jewellery and antiques
• Life insurance policies with surrender value
• Business assets and stock

The Bankruptcy Process: Step by Step

The bankruptcy process has been streamlined and is now mostly online. Here's what to expect:

Alternatives to Bankruptcy

Before choosing bankruptcy, consider these alternatives that may better suit your situation:

Debt Relief Order (DRO)

A "mini bankruptcy" suitable if you:

• Owe less than £50,000
• Have assets worth less than £2,000
• Have less than £75 monthly disposable income
• Haven't owned property in the last 3 years

Cost: £90 | Duration: 12 months

Individual Voluntary Arrangement (IVA)

Better than bankruptcy if you:

• Want to protect your home
• Have a regular income
• Can afford £100+ monthly payments
• Work in a profession that prohibits bankruptcy

Cost: Included in payments | Duration: 5-6 years

Debt Management Plan (DMP)

Consider if you:

• Can pay debts but need more time
• Want to avoid formal insolvency
• Have temporary financial difficulties

Cost: Free through charities | Duration: Varies

Who Can Go Bankrupt

Not everyone can or should declare bankruptcy. Understanding eligibility helps determine if it's right for you.

Basic Eligibility Requirements

• Live in England or Wales (Scotland and Northern Ireland have different processes)
• Unable to pay your debts as they fall due
• Haven't been bankrupt in the last 6 years (you can, but face extra scrutiny)
• Can pay the £680 fee

When Bankruptcy Works Well

Bankruptcy is often suitable if you:

• Have no valuable assets to lose
• Rent rather than own property
• Have mainly unsecured debts
• Cannot afford any debt solution payments
• Want the quickest route to debt freedom
• Don't work in a restricted profession

When to Avoid Bankruptcy

Bankruptcy may not suit you if:

• You own a home with equity
• Your debts are mainly priority debts (council tax, child maintenance)
• Your financial problems are temporary
• You work in finance, law, or accountancy
• You're a company director
• You have valuable assets you want to keep

Business Bankruptcy

If you're self-employed or a sole trader:

• Personal bankruptcy covers business debts
• You'll likely need to cease trading
• Business assets will be sold
• You can start a new business after discharge
• Limited company directors need separate company insolvency

Life After Bankruptcy

Understanding what happens after bankruptcy helps you prepare for rebuilding your financial life.

Immediately After Discharge

After 12 months, you're automatically discharged and:

• Most debts are written off completely
• Bankruptcy restrictions end (unless you have a BRO)
• You can be a company director again
• You're removed from the Insolvency Register after 3 months

Rebuilding Your Credit

Bankruptcy stays on your credit file for 6 years, but you can start rebuilding immediately:

• Year 1-2: Focus on basic accounts and paying bills on time
• Year 2-3: Consider a credit builder card with high interest (pay in full monthly)
• Year 3-4: Credit options gradually improve
• Year 4-6: Near-normal credit access, but higher rates
• After 6 years: Bankruptcy removed from credit file

Getting a Mortgage After Bankruptcy

Mortgages are possible but challenging:

• Year 0-1: No mainstream lenders will consider you
• Year 1-3: Specialist lenders may offer deals with 25-35% deposits
• Year 3-6: More options with 15-25% deposits
• After 6 years: Near-normal mortgage market access

Ongoing Obligations

Even after discharge, you must:

• Continue Income Payment Agreement for up to 3 years
• Declare bankruptcy when applying for credit over £500
• Inform insurers about past bankruptcy if asked
• Disclose to employers if required by contract

Frequently Asked Questions