Before the introduction of IVA and DRO, it was often the only possible debt relief solution. By announcing bankruptcy, all unsecured debts (without student loan) will be canceled within 12 months. However, the court may order the repayment of obligations up to three years, paying off each month the percentage of the so-called disposable income. Bankruptcy has a number of negative consequences that should be carefully considered before making a decision and should be consulted with an independent trusted adviser. Filing for bankruptcy costs £680.

If your home has a so-called equity (applies to homeowners and mortgage) the case will be directed to the so-called Official Receiver who will want to sell the property and recover some of the money.

In extreme cases, where reckless or dishonest behaviour can be established, a Bankruptcy Restriction Order (BRO) can be made which extends the imposition of Bankruptcy on individuals for a period of between one and three years.

You can sometimes be forced into Bankruptcy if your debts are over £5000 and you have frequently missed payments, or if you have broken the terms of an Individual Voluntary Arrangement (IVA). Some people choose to declare bankruptcy themselves but you need to explore all other options very carefully first.

The advantages of bankruptcy:

  • Your unsecured debts will be written off
  • You will not do anything directly with your creditors
  • You will have so-called a fresh start after just a year
  • Creditors will stop contacting you

The Disadvantages of Bankruptcy

  • You can lose your home if there is a so-called equity
  • You may have to sell your car or convert to a cheaper model
  • You will not be able to take a mortgage
  • The court may enforce an ‘income payments order’ for three years if it deems it necessary
  • Your credit score will be affected and evidence of entering into a Bankruptcy will be entered on a public register


Where Bankruptcy is available, there may be other options that are available and suitable for you.