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Checklist - is bankruptcy right for you?

This advice applies to England

Bankruptcy can help you become free of debts but it isn't the right option for everyone. It's important to understand how it will affect your day-to-day life and to explore the alternatives.

Bankruptcy explained

If you want more information about what bankruptcy is and how it works, see Bankruptcy - what you need to know.

When bankruptcy might be right for you

Bankruptcy might be suitable for you if all of the following apply:

  • you can't see a way to pay your debts
  • you don't have many belongings of value and there's little or no equity in your home
  • it's unlikely that your situation will improve
  • you live or carry out a business in England or Wales, or have done so at any point in the last 3 years and don't live permanently in another European state (apart from Denmark)

There isn't a minimum amount of debt you need to be eligible. If your unsecured debts total more than the things of value you own, then bankruptcy is an option for you. Unsecured debts include things like credit cards, personal loans and store cards.

When bankruptcy might not be right for you

Bankruptcy might not be suitable for you if any of the following apply:

  • you work in certain occupations such as solicitor, accountant or estate agent, as your professional association might bar bankrupt people from membership
  • you don't want your debt problems to be public
  • your circumstances might change in the near future - for example, if you're going to inherit money or you're expecting a compensation payment, it might be better to use this to deal with your debts
  • you have access to a pension pot that's bigger than your debt - you might not be allowed to become bankrupt

Your financial behaviour

The official receiver has the power to investigate your financial behaviour before and after your bankruptcy order is made. If you've done anything they think is dishonest or reckless they could get a ‘bankruptcy restrictions order’ against you. Or if they think you've committed a 'bankruptcy offence', you could be fined or sent to prison. Before you consider bankruptcy, check what counts as a bankruptcy offence.

Top tip

If you're considering bankruptcy, you'll need expert advice. Contact your nearest Citizens Advice for advice about your debt problems and bankruptcy.

Other things to think about

Going bankrupt could have a big impact on your life, so it's important you think about how it will affect you.

Cost of bankruptcy

Going bankrupt costs £680. You need to make sure you can afford to go bankrupt.

Your income

If your income is high enough, you could be asked to make contributions towards your bankruptcy debts. This is called an income payments agreement (IPA). If you don't agree to this, the court could make an income payments order (IPO) to force you to pay. Find out more about income payment agreements.  

Your home

If you own your home, it might be sold and the proceeds used to pay your creditors.

If you rent your home, you could lose it if your tenancy agreement says that you can't rent the home if you're bankrupt. You might find it harder to find a new home to rent.

Access to credit

While you're bankrupt you can't borrow more than £500 without telling the creditor about your bankruptcy.

Bankruptcy will have a serious impact on your credit rating. This could make running a business, getting a mortgage or getting other credit very difficult for a long time.

Your belongings

If you have any belongings, apart from basic household goods and things you need for work, they might be sold and the proceeds used towards paying your creditors.

Your bank account, savings and pension

Your bank account will usually be frozen as soon as you’re made bankrupt. You’ll need to make sure you have some money set aside to cover day to day costs at the beginning of your bankruptcy. Any savings you have will be taken and used towards paying your creditors.

If you have any pensions, bankruptcy might affect your pension savings. Pensions are a complex area so before you decide to apply it’s important to get advice.

Your job or business

Check the terms of your contract of employment carefully to see if it says you have to tell your employer if you go bankrupt. This is particularly likely if you work in a financial organisation or role and your job could be at risk if you go bankrupt.

If you run a business while you’re bankrupt you can only trade in the business name that you used on the date of the bankruptcy order. You can’t usually run a company or be a company director whilst you’re bankrupt.

Dealing with debts not covered by bankruptcy

While bankruptcy will clear many types of debt, there are some that are excluded, including magistrates court fines and student loans. If you owe any debts that are excluded, the people you owe these debts to can continue to chase you and take action to get their money back during your bankruptcy period. You therefore need to make sure you know which debts your bankruptcy won't cover and work out how you'll pay them back.

Bankruptcy will be public knowledge

If you go bankrupt, it will be recorded in public records that anyone can access. If you, or a member of your family that you live with, would be at risk of violence if your details were published, you can ask the court to order that this doesn't happen.

British citizenship applications and immigration status

Being declared bankrupt could have an impact on your immigration status or any application you're making for British nationality. You should make sure you understand how it might impact you before you go ahead with a bankruptcy application.

Alternatives to bankruptcy

If you’re not sure if bankruptcy is right for you there are other ways to deal with your debts. The main alternatives to bankruptcy are:

  • debt relief order - this might be appropriate if your debts total less than £20,000, you have less than £50 a month available to pay your creditors, you are not a homeowner, and any belongings you own (apart from basic household goods and a vehicle worth less than £1,000) are not worth more than £1,000 in total
  • individual voluntary arrangement - this might be appropriate if you've got at least £100 you could put towards paying your debts each month and want to pay off your debts over a fixed period of time
  • administration order - this might be appropriate if the total of your unsecured debts is less than £5,000 and you've got a county court judgment for debt

Next steps

More information

Find out about the alternatives to bankruptcy on GOV.UK.

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