Bankruptcy is one way of dealing with debts you cannot pay. The bankruptcy proceedings:free you from overwhelming debts so you can make a fresh start, subject to some restrictions; and make sure your assets are shared out fairly among your creditors. Anyone can go bankrupt, including individual members of a partnership. There are different insolvency procedures for dealing with companies and for partnerships themselves.

This section of the E-insolvency site will provide further information on bankruptcy such as:

• Information about bankruptcy and its alternatives
• Information about how long your bankruptcy will last
• Information about your home in bankruptcy
• Information about what will happen to a pension
• Information about getting your bankruptcy cancelled.
• Information about bankruptcy restriction orders.
• Information about how to petition for bankruptcy.

Information about bankruptcy and its alternatives

Bankruptcy is an option that often has to be considered when an individual cannot pay their debts as they fall due. A first time bankrupt with debts will generally receive their discharge one year after the date of the bankruptcy order (there is the possibility that in some cases the bankruptcy discharge period will be less than one year). Although bankruptcy has a bad stigma and is publicly advertised, it should always be considered when dealing with individual insolvency cases. Please note that if your are ever faced with the prospect of bankruptcy you should look at alternatives as soon as possible such as:

IVA (Individual Voluntary Arrangement) to clear debt

If you have enough money left over after paying your priority creditors and essential expenses, you may be able to arrange an Individual Voluntary Arrangement (IVA).

An IVA is a legal agreement with creditors (usually non-priority creditors) to repay your debts. This could either be in part or in full. The arrangement is negotiated, written up and checked regularly by an independent solicitor or accountant called an Insolvency Practitioner. Not all the creditors have to agree to an IVA as long as the creditors to whom you owe 75% of your debt agree.

Debt Managment Plan to clear debt

If you have enough money left over after paying your priority creditors and essential expenses, you may be able to arrange a debt management plan.

A debt management plan is an arrangement with your creditors to pay back the debt by regular instalments. Instead of you speaking to your creditors yourself to arrange the plan, a Debt Management Company (DMC) does it for you. Usually you have to pay for this service although there are some DMCs who will do this for free.

Bankruptcy to clear debt

If you have a debt problem, you might have a number of options for sorting it out. One of these might be bankruptcy.
Bankruptcy is a court order that you can apply for if you are in debt. Once you have been made bankrupt, you don't have to deal with the people you owe money to (your creditors). An official called the Official Receiver takes control of your money and property, and deals with your creditors.
Remember, bankruptcy might not be your only option and it might not be the best one for you.
Remember also that someone you owe money to could make you bankrupt even if you don't want this.

Protected Trust Deed to clear debt in Scotland

A trust deed is a formal arrangement with your creditors, used in Scotland where a debtor grants a deed in favour of the trustee which transfers their assets to
the trustee for the benefit of creditors.

Provided certain conditions are met, the Trust Deed may be registered as "protected", thereby preventing creditors from petitioning for the debtor's sequestration or taking any other steps to recover debts due to them. Financial and personal circumstances vary, so the consequences of signing a Trust Deed will be different for each individual or partnership.

Remortgage to clear debt

If you have enough money left over after paying your priority creditors and your essential expenses, you could think about taking out a loan to pay off your non-priority debts. This is called a consolidation loan. You can use a consolidation loan to pay off things like credit card debts and loans.

It’s usually not a good idea to borrow more money to repay your existing debts as this can make things worse and cost more in the long-run. Many creditors ask for the new loan to be secured against your home. This means you could lose your home if you don't keep up the payments.

Information about how long your bankruptcy will last

A bankrupt may be discharged (freed from obligations under the bankruptcy order) after the one year.

Discharge is not necessarily automatic and can be postponed by the Court. In addition, the discharge may not necessarily free that person from certain all liabilities and does not mean that unrealised assets will be safeguarded.

Discharge releases the bankrupt from most of the debts owed at the date of the bankruptcy order. Exceptions include debts arising from fraud, certain crimes and fines. Certain other debts such as damages or personal injury or money owed under family proceedings (such as maintenance) will be released only if the Court agrees.

If you have been declared bankrupt before, within the last 15 years, you will not be automatically discharged. You will only be able to apply to the Court for a discharge 5 years after the date of your current bankruptcy order; even then the Court may refuse or delay discharge.

Information about your home in bankruptcy

The Official Receiver or the trustee (if an insolvency practitioner has been appointed in place of the Official Receiver) may have to sell your home to go towards paying your bankruptcy debts. This applies whether the home is freehold or leasehold and whether it is solely or jointly owned.

Please note that if your home is mortgaged and you do not keep up your payments, your lender may be able to sell your home. You should consider contacting your lender about your bankruptcy and your mortgage payments.

Information about what will happen to a pension

Part or all of your pension may be claimed by your trustee in bankruptcy, whether you are receiving it now or it is due in the future.

Whether or not you are currently receiving your pension, the trustee cannot claim: your state pension or any payments from the State Earnings Related Pension Scheme (SERPS);

• any of your occupational pension if your occupational scheme has a clause forfeiting pension benefits following bankruptcy (the trustee could claim the benefit of a personal pension policy, even if it has a similar clause); and
• any protected rights - these rights arise in any pension you may have where you or your employer have contracted out of SERPS. They represent the equivalent of the SERPS benefits within your pension. In an occupational pension scheme, the protected rights might be known as ‘a guaranteed minimum pension’ or ‘benefits under the reference scheme test’.

When he or she has all the information about your pension, the official receiver or your trustee will be able to tell you what part, if any, of your pension is being claimed as an asset in your bankruptcy. Even if the trustee cannot claim your pension, or any part of it, the amounts you receive may still be included in the calculation of your income, if the trustee applies to the court for an income payments order’ during your bankruptcy. (The court may order you to pay part of your wages, salary or other income to the trustee.)

Information about getting your bankruptcy cancelled.

You can apply to have the bankruptcy order cancelled at any time if:

• the bankruptcy order should not have been made, for example because the proper steps involved in obtaining the order were not followed; or
• all your bankruptcy debts and the fees and expenses of the bankruptcy proceedings have been either paid in full or guaranteed to the satisfaction of the court; or
• you have reached an agreement called an “individual voluntary arrangement” with your creditors to repay all or part of your debts.

Information about bankruptcy restriction orders.

The official receiver considers that the conduct of a bankrupt has been dishonest or blameworthy in some other way, he (or she) will report the facts to court and ask for a BRO to be made. The court will consider this report and any other evidence put before it, and decide whether it should make a BRO. If it does, you will be subject to certain restrictions for the period stated in the order. This can be from 2 to 15 years.

What are the restrictions

They include the restrictions set out in insolvency law which you are subject to when you are made bankrupt and which are normally lifted when you are discharged from bankruptcy. These restrictions include the following:

• You must disclose your status to a credit provider if you wish to get credit of more than £500.
• You must disclose to those you wish to do business with the name (or trading style) under which you were made bankrupt. 
• You may not act as the director of a company or take part in its promotion, formation or management unless you get the court's 
  permission to do so. (You can apply to the court for this.)
• You may not act as an insolvency practitioner, or as the receiver or manager of the property of a company on behalf of debenture holders.
• You may not be a Member of Parliament in England or Wales.

Various other restrictions are not set out in insolvency law; these include not being able to act as a local councillor. If you wish to check whether a BRO restricts you from being elected to or remaining in an office or position, you should seek guidance from the appointing or authorising body or group. Alternatively, contact our Insolvency Enquiry Line on 0845 602 9848 (open between 9am and 5pm Monday to Friday)

Information about how to petition for bankruptcy.

First, you will need to complete the following forms. You can get the forms, free of charge, from a local court that deals with bankruptcy. You can also complete the forms on-line or print the forms off at The Insolvency Service's website at: www.insolvency.gov.uk. 

• The petition (Insolvency Rules 1986 form 6.27) - this form is your request to the Court for you to be made bankrupt and includes the reasons for your request. 
• The statement of affairs (Insolvency Rules 1986 form 6.28) - this form shows all your assets (anything that belongs to you that may be used to pay your debts) and all your debts, including the names and addresses of the creditors and the amount you owe each one. The form contains a declaration of insolvency that you will need to swear on oath before an officer of the court or a solicitor. You may have to pay an extra fee for this (see section 4). 

You can complete both of the above forms online via The Insolvency Service's Online Forms Service. This is an interactive internet service which can be accessed at a time and location that is convenient to you via The Insolvency Service's website, www.insolvency.gov.uk. Just follow the link "Do It Online" from the homepage.

The Online Forms Service is easy to use and provides assistance to allow you to complete the forms on your own. There is also a dedicated enquiry line telephone number and e-mail address if you require additional guidance in completing the forms. The Online Forms Service allows you to save and retrieve partially completed forms, with the ability to edit previously saved information. 

A secure database then captures the information you provide in the forms. This information is automatically deleted if you do not present your bankruptcy petition to the Court within six months, but if a bankruptcy order is made the information is made available to The Insolvency Service. This may reduce the need for the official receiver to ask you for additional information. 

Once you have completed the forms you will need to print them and take them to court.

If you do not use the Online Forms Service you should complete the petition and statement of affairs forms in capital letters, using black ink. Court staff can only advise you on the court procedure and give you the forms you need. They cannot give you legal advice.

If you are dealing with a county court, the court will need the completed forms and 2 copies of each before it can accept your petition for bankruptcy. If you are taking your petition to the High Court, you won't need any extra copies. When you have completed both forms, and printed the forms if you have used the Online Forms Service, signed and dated the bottom of every page, and have the fees ready, you can go to the court and ask for your petition to be dealt with.

NB: If you are, or were, running a business in partnership (even if there is no formal partnership agreement) and all the partners want to be made bankrupt, you will need different petition and statement of affairs forms. These are available from your local court.