What is debt?

You are in debt if you owe money to another person or organisation. In this situation, you are known as the debtor and the person you owe is the creditor.

Usually, you can make arrangements to pay the money back. However, if you can’t pay off your debts you will need to apply for bankruptcy.

If you don’t apply for bankruptcy yourself, the creditor can apply to make you bankrupt, even if you don’t want them to. For this to happen, you must owe at least £5,000.

There are several other options you can take, including a debt relief order, which is a cheaper alternative to bankruptcy. This is only available if your debts, income and property are below a certain amount.

A bankruptcy order can be seen as a fresh start once the process is complete. This may take a year, but is a considerable advantage. Here are a few other benefits of going bankrupt:

• The pressure is lifted from you as you don’t have to interact with creditors
• You can keep certain things (household goods and a reasonable amount to live on)
• Creditors must stop most forms of court-action following a bankruptcy order
• The money you owe is usually written off

Going bankrupt is a costly process; you’ll need to pay a £680 fee. Some other disadvantages include:

• If your income is high enough, you’ll have to make payments towards your debts for three years
• It’ll be more difficult to take out credit while you’re bankrupt and your credit rating will be affected for six years
• If you own your home, it might have to be sold to cover some of the debt
• Some of your possessions might have to be sold (e.g. car and other luxury items)
• If you own a business, it might be closed down and the assets may be sold
• Bankruptcy can affect your immigration status

Your bankruptcy will be published publicly, so may affect your reputation. However, if you’re worried that you or your family maybe victims of violence, you can request that your details aren’t given out. 

Bankruptcy proceedings usually take a year to complete. The Official Receiver will tell you when it’s over.

At the end, most debts that haven’t been paid will be written off. However, some debts like court fines and student loans will not be written off.

Remember, even if you’re no longer bankrupt, you could have a bankruptcy restriction order made against you. This can last up to 15 years and will restrict your financial affairs.

This order could be made if, for example, you do not co-operate with the Official Receiver, or you take on debts knowing that you won’t pay them back.

Visit this GOV.UK site and apply for bankruptcy. Please note it will cost £680 and you will not get this money back if a bankruptcy order is made. 

You can either pay:

• Online – this also means you pay the fee in instalments
• In Cash – pay in person at the Royal Bank of Scotland (you can’t pay in instalments this way)

If you need help with the form, contact your local Citizens Advice Bureau or call the Insolvency Service enquiry line:

Telephone: 0300 678 0015

Open Monday to Friday; 8am to 5pm

Calls can cost up to 12p a minute from landlines and between 3-45pm for mobiles.

Email: insolvency.enquirlyline@insolvency.gsi.gov.uk 

Before you apply for bankruptcy, try to ensure you have enough cash for day-to-day expenses. This is because your accounts are usually frozen after a bankruptcy order has been made.

If your application is accepted, your money will be controlled by the Official Receiver. They will arrange an interview with you, tell your creditors about the bankruptcy and send them a summary of your financial situation.

Your name and bankruptcy details will be published on the national register of bankruptcies, called the Individual Insolvency Register.