Bankruptcy process

Bankruptcy is a form of insolvency which can apply to an individual or a sole trader business (but not to other forms of business such as limited companies or partnerships). It releases the person going bankrupt from their outstanding debts. However, the state of bankruptcy normally lasts for a year and has various detrimental effects during this period of time and beyond.

What are the main steps of going bankrupt?

Bankruptcy can either be applied for by the person who wishes to declare themselves bankrupt - or it can be sought by a creditor in an attempt to collect any money owed.

Before deciding to apply for bankruptcy, it is important to consider the pros and cons of doing so. The overall process of going bankrupt consists of the following stages:

  1. Apply for bankruptcy
  2. Wait for the adjudicator's decision to either make a bankruptcy order or reject the application - this generally takes 28 days but can be extended by 14 days if they require more information
  3. If a bankruptcy application is rejected by the adjudicator, consider asking for a review and lodging an appeal - you can request an appeal by submitting form N161 to your local court that deals with bankruptcy
  4. If the application is accepted and a bankruptcy order is made, banks or building society accounts belonging to the bankrupt are frozen
  5. Cooperate with the official receiver - an interview will normally take place over the phone
  6. Open a new 'basic' bank account - some banks will not offer any type of account to a bankrupt
  7. Discharge from bankruptcy (generally after 12 months from the date of the bankruptcy order)

How do I apply for bankruptcy?

Before applying for bankruptcy, you should first consider alternative ways of dealing with debts. Apply for bankruptcy online using the Gov.uk service. Information about income, outgoings and debts will be required to be submitted as part of the application (eg information contained in wage slips, benefits statements, utility bills and letters from a bailiff etc).

Once an application has been submitted, it will be considered by the adjudicator (who works for the Insolvency Service). The adjudicator will generally inform the applicant of their decision within 28 days - if the application is successful a bankruptcy order will be issued.

What are the fees?

Currently it costs £680 to apply for bankruptcy. Check the Gov.uk website for the latest fees.

A bankruptcy application cannot be submitted until the fee has been paid in full. It can be paid in instalments - and it is sometimes possible to apply for a grant.

What is the role of the official receiver?

Once a bankruptcy order is made, the bankrupt's money and property will come under the control of the official receiver. They will contact the bankrupt and arrange for an interview (normally over the phone) to discuss the bankruptcy - this should take place within 10 working days of the bankruptcy order being made.

The official receiver is in charge of the administration of the bankruptcy; they will distribute any remaining assets to creditors and deal with the bankruptcy trustee if required. Other duties of the official receiver include:

  • Investigating the conduct and financial affairs of the bankrupt
  • Advertising the bankruptcy in the London Gazette
  • Informing all the creditors of the bankruptcy
  • Sometimes acting as the bankruptcy trustee

What happens after bankruptcy?

Normally after 12 months of a bankruptcy order being made, the bankrupt will be discharged from bankruptcy. This essentially releases them from most debts and restrictions (subject to a bankruptcy restrictions order or bankruptcy restrictions undertaking).

Discharge from bankruptcy happens automatically. It is possible to find the discharge date on the Individual Insolvency Register or to email the Insolvency Service and ask for a confirmation letter. A Certificate of Discharge will be required for mortgage applications and this is available free from the Insolvency Service (in respect of online applications) - or from the court (if the bankruptcy application was made to the court) for a fee of £70 (and £10 for extra copies).

It is necessary to apply to Land Charges and HM Land Registry to remove a bankruptcy entry in respect of properties - see Gov.uk for more information on how to apply.

During bankruptcy, if the bankrupt does not fully cooperate with the official receiver or trustee, the court may suspend the discharge, so it can be delayed beyond 12 months.

Any income payments agreements or income payments orders will continue beyond the discharge date. Any personal belongings which were confiscated upon bankruptcy but have not been sold will remain in the bankruptcy estate - but a family home (ie where the bankrupt and/or current or former spouse/civil partner reside) which has not been sold within three years of the bankruptcy order may be returned to the bankrupt.

For further information about what happens when bankruptcy ends, see the Gov.uk website.