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What Happens When You Declare Bankruptcy In The UK?

Posted on by Murray & Lamb

Bankruptcy is a method of dealing with and clearing your debts. However, it should only be considered as something of a last resort due to its severe consequences. If you can’t pay back your debts and you have exhausted all other options open to you – such as debt relief orders or individual voluntary arrangements (IVA) – only then should you consider starting bankruptcy proceedings. This month, we’ll be looking at what it means to declare bankruptcy and what some of the consequences are.  

Declaring Bankruptcy

You can either declare bankruptcy yourself or, alternatively, someone that you owe money to (a creditor) may create a petition to make you bankrupt. Making yourself bankrupt isn’t free, it’ll cost £680 to cover court costs and a fee for the Official Receiver – the individual who will handle your assets, money and creditors. A creditor to whom you owe at least £5,000 can apply to make you bankrupt, even if you don’t agree to it.



Once you’ve been made bankrupt, you have to hand over your finances and assets to the Official Receiver to manage. They will sell off assets to pay your debt, freeze your bank account and take hold of all bank cards, credit cards and chequebooks. Your bank will decide whether you are allowed to continue using accounts when bankrupt. General disadvantages to becoming bankrupt include:

  • You may have to sell your home
  • You may have to sell off belongings, particularly any that are of a high value or deemed ‘luxury’ items
  • It will be hard to get credit when bankrupt and your credit rating will be negatively affected for 6 years
  • With a high enough income, you’ll still have to make debt payments for 3 years
  • Your pension savings can be taken, depending on how close you are to retirement
  • If you have a business, it can be shut down and the assets sold
  • You have to follow ‘bankruptcy restrictions’, otherwise you can be prosecuted
  • Future career prospects can be harmed as some professions won’t accept people who have been bankrupt
  • Your bankruptcy will be publicly accessible and published



Bankruptcy can be the right decision for some people, under certain circumstances. If you are truly struggling to pay off debts, it can be a way to draw a line under the money that you owe and make a fresh start. Advantages to bankruptcy include:

  • Generally, bankruptcy ends after a year, at which point your debts are written off
  • You can keep some belongings which you need, including household items, belongings needed for work and a reasonable amount of money to live off
  • You can reduce the stress and pressure of creditors pursuing you for money – the Official Receiver will now deal with this
  • After declaring bankruptcy, creditors have to stop most kinds of court action for regaining their money

You have to cooperate fully with the Official Receiver and act carefully and honestly during your bankruptcy or face restrictions for much greater periods of time. It is also worth bearing in mind that some debts cannot be written off, such as student loans or court fines.


Murray & Lamb are a leading accountancy firm in the North East with a team of skilled and highly trained chartered accountants and business advisors. We provide a wide range of professional accountancy services and support work for business startups. Our experienced team can offer trustworthy financial advice and help keep you and your business organised, efficient and financially secure. For further information, simply get in touch with our helpful team today.

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