Weighing up bankruptcy? Talk to us about the alternatives
Bankruptcy can give you a fresh start, but it can also put your home, car and job at risk. IndividualVoluntaryArrangements.net helps people compare bankruptcy with an IVA so they understand exactly what each would mean for them. We look at your assets, income and employment, and explain the practical consequences of both before you decide.
For homeowners and people whose jobs could be affected by bankruptcy, an IVA is often the better route. For others, bankruptcy may be quicker and simpler, and we'll be straight with you if that's the case.
What we help you understand
- What would happen to your home and other assets
- Whether bankruptcy could affect your job or business
- How the total cost and length compare with an IVA
In England and Wales, you apply for bankruptcy online through the Insolvency Service. Most people are discharged after 12 months, and most of their debts are written off.
How bankruptcy works
You apply online to an adjudicator at the Insolvency Service and pay a fee of £680. If you're made bankrupt, an Official Receiver takes control of your financial affairs and may appoint a trustee to sell assets to repay your creditors.
If you have spare income, you may have to make monthly payments for up to three years under an income payments arrangement (IPA) or order (IPO). You're usually discharged from bankruptcy after 12 months, and most debts are written off.
What happens to your home?
Your share of your home's equity becomes part of your bankruptcy estate. The trustee may sell your home or ask you to buy out their interest. If you rent, bankruptcy doesn't automatically end your tenancy, but rent arrears can put your tenancy at risk.
Other effects of bankruptcy
- Valuable assets, including some vehicles, may be sold.
- It's recorded on your credit file for six years.
- You're listed on the Insolvency Register.
- Some jobs and roles are restricted, such as being a company director without court permission.
- If you run a business, it may have to close.
- Your bank may close your account.
Bankruptcy or IVA?
Bankruptcy is usually shorter and can write off more debt, but you lose control over your assets. An IVA lets you keep your home and assets while repaying what you can afford, usually over five years. See our IVA vs bankruptcy comparison.
Northern Ireland and Scotland have separate bankruptcy processes. In Scotland, bankruptcy is known as sequestration.
Can I keep my car if I go bankrupt?
You may be able to keep a car if you need it for work or other essential reasons and it isn't worth a great deal. If it's valuable, the trustee may sell it and allow you a cheaper replacement. Cars on hire purchase or PCP belong to the finance company, so those agreements are handled separately. In an IVA, by contrast, a reasonable car you need is usually left alone.
Is bankruptcy cheaper than an IVA?
Bankruptcy has an upfront application fee of £680, while an IVA usually has no upfront cost, with fees taken from your monthly payments instead. If you have spare income, bankruptcy can also involve monthly payments for up to three years under an income payments arrangement. So the total cost depends heavily on your income and assets. For someone with no spare income and no assets, bankruptcy can be cheaper overall. For a homeowner, the potential loss of equity can make it far more costly.
Bankruptcy restrictions orders
Most people are discharged after twelve months. However, if the Official Receiver believes you've acted dishonestly or recklessly, for example by hiding assets or gambling away money before going bankrupt, you can be given a bankruptcy restrictions order or undertaking. These extend the restrictions for between two and fifteen years. Being honest and open throughout the process is essential.
Bankruptcy and your bank account
Your bank may freeze or close your account when you're made bankrupt, particularly if you owe that bank money. Many people open a basic bank account with a bank they don't owe anything to before applying. Your wages and benefits can then continue to be paid in.
How to apply for bankruptcy
In England and Wales, you apply online through GOV.UK. The £680 fee can be paid in instalments before you submit the application. An adjudicator at the Insolvency Service then decides whether to make you bankrupt, usually within 28 days. You'll be asked about your debts, assets and income, and you must provide full and honest information.
Bankruptcy if you're self-employed
If you're a sole trader, bankruptcy usually means your business stops, and business assets can be sold. You may be able to keep tools and equipment you need to work, and you can start trading again, but you'll need to tell anyone you do business with that you're bankrupt if you trade under a different name. For self-employed people who want to keep their business running, an IVA is often the better fit.
Life after discharge
Once you're discharged, usually after twelve months, you're released from most of your debts and the restrictions lift. Your bankruptcy stays on your credit file for six years, and any income payments arrangement continues until it ends. Many people find that having a fresh start allows them to rebuild their finances, but it takes time and careful use of credit.
Compare your options with us
If you're considering bankruptcy, compare it with an IVA before you apply, because bankruptcy is difficult to undo. Fill in the form at the top of the page, and we'll explain the differences in your situation. You can also read our full IVA vs bankruptcy comparison.
When we speak, it helps to know roughly what your home is worth if you own one, what you owe on it and whether you have a car, savings or other assets of value. We'll use these figures to show you what bankruptcy and an IVA would mean in practice, so you can compare them on a like-for-like basis before making a decision that's hard to reverse.