Everything you need to know about bankruptcy

Filing for bankruptcy is never an easy process, and can also be a complex process to understand. You may even be wondering what bankruptcy is and how bankruptcies work. Here, we’ll take a look at the process of becoming bankrupt and the potential outcomes for individuals and businesses facing bankruptcy. 

We will dive into the role of the Official Receiver, how long bankruptcy lasts and the impact on credit ratings. We will also explore key topics such as the differences between bankruptcy and other insolvency options, the legal implications, how assets are affected, and the steps involved in filing for bankruptcy, keep reading. 

Please note that there are alternatives to bankruptcy and we will also provide advice on how to avoid it through debt management and restructuring options. 

What is bankruptcy? 

So, let’s first take a look at what exactly bankruptcy is. It is a way for people to deal with debts they have but can’t pay. The process makes sure that your assets are shared among those who are owed money and allows you to free yourself from debt. 

The steps involved

You can apply online to make yourself bankrupt, or if someone else has applied, you’ll get a copy of the petition. The early stages of a bankruptcy are handled by something called an Official Receiver (OR).  

An OR works for the Insolvency Service and the court. They will sell your assets apart from any items you need for work and  will write to you to explain what’s happening and what your next steps are. 

If you file for bankruptcy and it’s approved, you’ll have an interview with the OR. They will ask you to collect some paperwork and will ask you about the circumstances that have led to your bankruptcy. This will also be your opportunity to ask any additional questions. It will take between 8 to 12 weeks for a report to be sent to your creditor showing any assets and debts that you have. 

How assets are affected

You have no choice but to give your assets to the OR, but there are some items you can keep. Items needed for your job, such as vehicles, and household items that include bedding and furniture. However, if you own your home, it can also be sold. 

Differences between bankruptcy and other insolvency options

Bankruptcy is a legal concept that results in an individual’s assets being sold. This is declared by the court because of a failure to settle debts. 

Insolvency is a financial state where an individual or company is not able to clear debts due to not having enough money. The nature of insolvency is temporary and the amount can be recoverable - this is the main difference between the two. 

Requirements of bankruptcy

There are three main reasons that result in a bankruptcy:

  • You’re unable to pay the money that you owe and declare bankruptcy yourself.
  • The people you owe money to make you bankrupt because you owe them £5,000 or more.
  • An insolvency practitioner makes you bankrupt because you’ve broken the terms of an individual voluntary agreement. 

Potential outcomes 

If you’re now wondering what is the downside of filing for bankruptcy, let’s take a look at what they are so that you can make informed decisions. 

Impact on credit rating

As soon as you’re declared bankrupt, your credit score will be impacted. The bankruptcy itself will be on your credit record for at least six years and is likely to prevent you from getting loans or a mortgage. The good news? It’s possible to rebuild your rating by paying off credit on time or even early. 

How long does bankruptcy last? 

After 12 months, your bankruptcy restrictions will end and you will be ‘released’ from your debts. Unless you don’t cooperate with your OR, your bankruptcy will automatically end, even if you’ve not made any payments or your assets haven’t all been sold. 

Alternatives to bankruptcy

There are, however, a few alternatives to bankruptcy that you could consider to lessen the blow. Essentially,  alternatives to bankruptcy are largely alternative forms of debt management: 

  • Restructuring options: You may be able to arrange an informal agreement to rearrange the way you pay back your debts with your creditors. This is usually done by one monthly payment that is divided between them. 
  • Debt management plan:  If working with a credit counsellor to create a repayment plan is feasible for you, this is a great alternative to declaring bankruptcy. 
  • Credit counselling: Perhaps you’ll benefit from seeking help with credit counselling agencies instead. At the very least, this could help with not making the same future financial mistakes. 


If you’re having issues with debt repayment, please contact us at Creditserve on 01992 414222 for assistance.