What Is Bankruptcy?

Bankruptcy is a formal insolvency route for individuals with serious debts that they cannot pay. Bankruptcy is often the last resort and is usually applied when no meaningful alternative can be offered to creditors. You may petition for your own bankruptcy or a bankruptcy order may be applied for by one of your creditors if you cannot pay what is owed to them. Whilst the Enterprise Act 2002 now allows some bankruptcies to be discharged after one year this is not expected to be the norm and any proof of reckless spending may result in a bankruptcy period of between 2 and 15 years.

What Are Disadvantages Of Bankruptcy?

Bankruptcy is personal insolvency's "nuclear option". That's not to say it is not the right choice for many - it often is. But, life won't be the same after becoming bankrupt - not least when it comes to rebuilding your credit rating in years to come:
All your assets, apart from those required for a basic standard of living, will be sold. This may include your house.

You will not be allowed to obtain more than £500 credit unless you first disclose that you are bankrupt.

Any income you have in excess of that needed for your basic needs will have to be paid to your creditors.

Your job may be at risk: certain trades and professions will not allow you to work when bankrupt.

Your credit rating will be affected (probably for some time after your bankruptcy ceases) and there may be other restrictions, such as having your bank and credit card accounts closed.

Your bankruptcy will be advertised in newspapers.