When you are under the extreme burden of overwhelming debt, it is easy to think of going bankrupt as the best way to get rid of your problems and give yourself a fresh start… but it is not as good as it seems. To the contrary, it might be the worst decision you could ever make in your life because it can have serious consequences.
For this reason, we've compared the benefits and drawbacks of filing for bankruptcy in the UK in order to give you a thorough and in-depth review of this common debt relief option. You will learn about various debt relief options with more advantages and fewer disadvantages, and you will be able to determine whether they are truly the best choice for your situation.
Join us as we examine the benefits and drawbacks of filing for bankruptcy as well as the top channels for getting advice from independent debt counsellors.
Top 4 Sites to Find Qualified Third-Party Debt Advisors for Advice
If you want advice from an FCA-authorised, third party debt advisor who can better explain to you the pros and cons of bankruptcy, as well as show you the better alternatives to handle your debts, then here you have our top 4 platforms to apply for debt advice now:
- Viva Debt Help: Top Rated Platform for Third Party Debt Advice
- 123 Debt Fix: Best Platform for Highly Indebted Individuals Seeking Third Party Debt Advice
- Help My Debts Pro: Best Platform for Business Owners Who Need Third Party Debt Advice for Personal Debt
- Debt Nurse: Best Platform for Individuals With Different Types of Debts (Payday Loans, Credit Cards, Income Tax, etc.) Who Need Third Party Debt Advice
You only have to click on the name of your preferred option from our ranking to visit their website, fill out the application form and get a third-party debt advisor to call you in record time.
1. Viva Debt Help: Top Rated Platform for Third Party Debt Advice
When it comes to seeking bankruptcy assistance from FCA-authorized debt advisors, Viva Debt Help has emerged as the top-rated site. You will receive a thorough examination of your predicament, including how filing for bankruptcy can make things worse and what other options, such an IVA, DMP, or DRO, might be able to do for you. They can assist you if you have a lot of debt, owe money to several creditors, own a property or business, or in a variety of other circumstances.
They stand out for their extensive network of reputable third-party debt experts, quick call response times, and ability to explain everything in plain terms and a polite manner.
2. 123 Debt Fix: Best Platform for Highly Indebted Individuals Seeking Third Party Debt Advice
If your debts surpass the £5,000-£10,000 mark, then you should apply for third-party debt advice through 123 Debt Fix. Their network of debt advisors specialised in helping highly indebted Britons will be able to bring you the solutions you need right now. From letting you know the alternatives to a bankruptcy to how you can set them up, you can rely on this platform to get the guidance you need right now.
123 Debt Fix is especially useful if you owe money to multiple creditors, because their third-party debt advisors have experience helping individuals in this exact situation.
3. Help My Debts Pro: Best Platform for Business Owners Who Need Third Party Debt Advice for Personal Debts
Filing for bankruptcy if you are a business owner, especially when you have several assets titled to your name, can be a disastrous decision. This is why we encourage you to contact a specialised third-party debt advisor through Help My Debts Pro, because they can bring you the advice you need right now.
You will be able to understand the pros and cons of filing for bankruptcy as a business owners, and what alternative methods you could use to protect your cash flow, minimise the impact of debts and how to make your company survive despite the burden of your personal debt.
4. Debt Nurse: Best Platform for Individuals With Different Types of Debts (Payday Loans, Credit Cards, Store Cards, Personal Loans, etc.) Who Need Third Party Debt Advice
If you have multiple types of debts such as credit cards, personal loans, payday loans, catalogues, and store cards, then you should seek advice through Debt Burse. Since their third-party debt advisors specialised in helping Britons with different types of debts, you can rely on this platform to get guidance right now.
Furthermore, Debt Nurse can connect you with a debt advisor who can explain to you why you should consider bankruptcy as a last resort, and how a DMP, IVA or DRO could be a much better solution for your situation. Especially when there are valuable assets at risk.
How to Apply for Specialised Third Party Debt Advice
If you’ve already chosen a platform from our ranking but you don’t know how to apply for third party debt advice, then just follow these 5 steps:
- Choose a third-party debt advice platform from our ranking
- Visit their website and fill out the application form
- Send the application form
- Wait for a FCA-authorised debt advisor to call you
- Receive specialised debt advice from a qualified third-party advisor
Now you can get a FCA-authorised debt advisor to analyse your case and let you know if going bankrupt is a good idea, and what other alternatives you could use such as a Debt Management Plan (DMP), IVA, Debt Relief Order (DRO), amongst others.
What Is Bankruptcy in the UK?
Bankruptcy is a process by which individuals can get rid of debts that they cannot pay. For example, if you declare yourself bankrupt, normally after issuing a court order, your assets will be managed and sold to repay your creditors.
An Official Receiver will be in charge of managing your bankruptcy process, from initiating the process to selling your assets to repay your creditors. The majority of outstanding debts that couldn’t be covered by selling your assets are usually written off. You also need to consider that any excess money you have might be used to repay your creditors, in order to bring you a fresh start.
The entire bankruptcy process in the UK will last for approximately 12 months, after which you will be “discharged” as long as you follow the rules and limitations of the agreement. However, the so-called “fresh start” is not as simple as it sounds, because a bankruptcy, even after you’ve been discharged, will keep affecting your life because it will appear on your credit file for 6 years.
This is why bankruptcy is considered as a “last resort” by insolvency specialists in the UK, because even though it is an effective way to write off debts you cannot pay, its long-term consequences outweigh the short-term benefits.
The Pros and Cons of Bankruptcies in the UK: Quick and Compelling Comparison
If you want to go straight to the point and compare the pros and cons of going bankrupt quickly, then check our comparison table:
You can write off a high percentage of your debts
You can lose your home, assets and belongings
Creditors will stop harassing you
You can lose your current job and find it incredibly hard to get a new one
You can keep essential belongings
You might still have to make monthly payments to creditors
You can start again and rebuild your credit
Your bankruptcy will show up on your credit file for 6 years
You won’t be able to take out a loan for more than £500 during the bankruptcy period
Your co-signer will still be responsible for paying joint debts
You will have to follow strict rules and restrictions
You might still have to make monthly payments after the bankruptcy period has finished
You might not be able to write off debts such as student loans, child maintenance, criminal fines and mortgage
As you can see, declaring bankruptcy may not be a wise decision in the majority of situations because the negative effects will outweigh the minimal positives. Due to this, we advise you to consider the following alternatives:
- Individual Voluntary Arrangement (IVA): This arrangement will freeze interest rates and changes, help you to write off a big percentage of your debts, creditors will stop contacting you and cannot take legal action against you, and the payments can be as low as £100 per month.
- Debt Management Plan (DMP): This debt solution will allow you to write off many of your debts, you can keep the payments small and you won’t have to sacrifice assets such as your home to repay your debts. See other related posts on Best Debt Management Plans
- Debt Relief Order (DRO): You can use a DRO to repay your debts when your disposable monthly income is severely limited, and it will only last for 12 months after which your available debts will be written off.
We recommend you to contact a third-party debt advisor through our listed platforms in order to receive a specialised analysis on your current situation. You will be able to compare bankruptcy against an IVA, DMP and DRO, and hence it will become easier to make the best decision for getting the debt relief you need right now.
The Cons of Bankruptcies: Be Aware of the Consequences
Filing for bankruptcy might seem like an attractive solution when you are tired of creditors calling you multiple times per day and when you acknowledge that you cannot repay your debts at the current rate. However, here you are going to see that it is a debt solution with more cons than pros - check the evidence below.
1. You Might Lose Your Home
Did you know that your official receiver might ask you to sell your home in order to pay your debts? Since it will become his/her legal property, the official receiver can proceed to sell it if the home equity is big enough to pay to the creditors. This will be the same fate for any other non-essential valuable asset that you possess such as another property, be it residential or commercial, cars, motorbikes, boats, etc.
2. You Might Lose Your Valuable Belongings
The majority of your non-essential belongings such as a car that you don’t use to drive to work or for your trade, will become the legal property of your official receiver. This can also include jewellery, home decor, luxury accessories, furniture, computers, etc. This is an aspect that many people who are highly indebted dismiss about bankruptcies, because when you opt for this option without analysing your situation properly, you can lose a lot more than you can imagine.
3. You Will Find It Harder to Secure a Good Job
If you work in the finance or legal industry, then you will find it much harder to land a new job. And you might lose your current job after filing for bankruptcy if your work contract contains a clause that explicitly mentions it. On the other hand, alternatives such as an IVA or a DMP won’t have this type of negative consequences on your employability.
4. You Will Find It Incredibly Hard to Rebuild Your Credit
You will be discharged from your bankruptcy after 12 months, but even then you will find it incredibly hard to rebuild your credit. Because it will appear on your credit file for 6 years, and in some cases it could appear for 10 years or even longer if the official receiver decides to issue an IPA, BRO or BRU due to dishonest or fraudulent actions during the bankruptcy period.
Furthermore, you need to remember that you won’t be able to take a loan bigger than £500 during the bankruptcy period. And even if you repay the loan on time, your credit score won’t increase significantly because the bankruptcy will have a major negative effect on it.
5. You Might Hurt Your Relationships Irreparably
Did you know that your partner will still be responsible for joint debts after you’ve been declared bankrupt? It can also be your brother, sister, business partner, mother or father, and you know that this could damage your relationships irreparably. Because they will still have to repay the debts.
6. You Might Still Have to Make Monthly Payments to Creditors
Many Britons mistakenly believe that you don’t have to make payments during the bankruptcy period, but this is only true as long as you don’t have an income. However, if you start making money, then you need to inform the Official Receiver, and based on it you will have to make payments to creditors.
Failing to do it, especially when there’s an important surplus after paying for your living costs, will lead to problems even after you have been discharged. Because the official receiver can impose an IPA, BRO or BRU, which will extend the consequences of bankruptcy for several years.
7. You Will Have to Obey Strict Rules and Restrictions
You will also have to make sure that you obey these rules and restrictions without fault:
- You are not allowed to obtain credit of £500
- You must report the official receive about any change in your income (especially if there’s a surplus)
- You need to inform the lender about your bankruptcy
- You cannot serve as a company director
- You cannot serve as an insolvency practitioner (IP)
- You need court approval to create, promote, or manage a company
- You need to use your name to act as a sole trader
- You need to inform all of the businesses you engage with about your bankruptcy if you use a different name for bringing your sole trade services.
Failing to follow these rules will lead to serious problems even when you’ve been discharged. There can be extra payments for up to 3 years, fines or even criminal charges if you are found guilty of fraud or criminal actions during the bankruptcy period.
8. You Will Not Write Off All Of Your Debts
It’s also a myth that you can write off all of your debts if you go bankrupt. You will still have to pay the following during or after the bankruptcy period:
- Criminal fines
- Student loans
- Fraudulent debts
- Child maintenance payments
- Social fund loans
- Injury compensation
- TV licence
The Pros of Bankruptcies: Discover the Possible Benefits
Even though the long-term consequences of going bankrupt outweigh the pros, it’s still worth it to consider the benefits since it could be the last resort for you.
1. You Can Write Off Your Debts
A bankruptcy will help you to write off an important percentage of your debts such as:
- Credit Cards
- Personal Loans
- Payday Loans
- Store Cards
- Benefit overpayments
Did you know that you can cover practically all of the same debts with an IVA, DRO or DMP? This is why we recommend you to explore these 3 options before opting for going bankrupt, especially considering the cons of the latter.
2. Creditors Will Stop Contacting You
Once you have been declared bankrupt, you can forget about creditors harassing you. You can say goodbye to calls and messages about your debts, giving you the peace of mind you need to focus on rebuilding your life.
3. You Can Keep Some of Your Belongings
You can keep essential belongings if you go bankrupt. It includes clothing, a car you use for work, some furniture, household items, bedding and items you need for your job, especially now that many Britons work remotely (here you can include a laptop, desktop, printer, etc.).
4. Get Yourself a Fresh Start
After 12 months, you will be officially discharged from your bankruptcy. Even though it will still appear on your credit file for six years and the official receive might still take actions such as imposing an IPA, BRO or BRU (which can lengthen the bankruptcy and make it more expensive), it will bring you the necessary resources to start again by rebuilding your credit, getting a better job, starting a new business, etc.
What is the Cost of Filing for Bankruptcy in the UK?
The cost of declaring bankruptcy in the UK is £680, of which you must pay a bankruptcy deposit of £550 and an application charge of £130. You will eventually have to give up your most prized possessions in order to pay your creditors, and this is just the beginning. Additionally, you might still be required to make regular payments, which would significantly increase the cost of bankruptcy.
Although declaring bankruptcy may seem like the simple solution, you will be giving up much more than you might think. This is why seeing a qualified third-party debt advisor—who you can hire through our suggested platforms—is a superior idea.
The Timeline of Bankruptcies in the UK: How It Will Affect Your Life for Years to Come
Here is a timetable of how this decision will impact your life over the following years, in case our analysis of the pros and cons wasn't clear enough to help you decide if you should file for bankruptcy.
Consequences of Bankruptcy After 1-2 Years
After 12 months, you will be officially discharged from your bankruptcy, which means that an important percentage of your debts will be written off and now you can start from scratch. However, keep in mind that you will still have to pay debts such as student loans, criminal fines, and debts incurred through fraud.
Upon being discharged, all the rules and restrictions you had to follow won’t be valid any longer. From being able to take out a loan bigger than £500 to serving specific roles such as becoming a company director, now you can do things better.
The Phantom of Bankruptcy Will Still Follow You
However, the bankruptcy will still show up on your credit file, something that will decrease your chances of obtaining a new loan, credit card or even a payday loan. Furthermore, many employers will not like to see that, making it harder to land a good job. And this could even create problems when renting a new place.
As long as you followed all the rules and restrictions during the bankruptcy period, and your assigned Official Receiver didn’t find any evidence that you broke them, you will be removed from the Individual Insolvency Register.
You Might Still Lose Your Home
Even after being completely discharged, you might still lose your home if your Official Receiver detects that the equity of your home is big enough. From here, he/she can take two routes: apply a changing order or simply opt for selling your home. This way they can retain the equity and use it to make the corresponding payments.
Consequences of Bankruptcy After 3-4 Years
Even after 3-4 years, you will still have to deal with certain consequences of going bankrupt. If you failed to report your Official Receiver about disposable income during the bankruptcy period, then you might have to enter into an Income Payment Arrangement (IPA). As you can easily guess, it means that you will have to make payments to creditors, for a period of 3 years.
If you fail to stick to the IPA payments, then you need to remember that you will have to deal with constant calls and reminders because it’s an obligation that you will have to fulfil.
Your bankruptcy will still show up on your credit file by this time, making it harder to get a loan and it will severely restrict your employment options. Especially if you’ve entered into an IPA, which will lengthen the presence of this negative item on your credit file.
Consequences of Bankruptcy After 5-6 Years
Your bankruptcy should disappear from your credit file after 6 years, as long as you have not received any new sanction such as an IPA, Bankruptcy Restriction Undertaking (BRU) or a Bankruptcy Restriction Order (BRO). Because it means that this item will remain on your credit file for as long as these sanctions are still active.
If you’ve been successfully discharged from your bankruptcy with no further actions or agreements, then now you will be able to start rebuilding your credit. However, you need to check with the credit bureaus to ensure that they have updated your credit file, in order to recalculate your new credit score.
Consequences of Bankruptcy After 10+ Years
By now, as long as you didn’t act dishonestly during the bankruptcy period, you should have a better credit score, a good job or business and an overall better life quality. You should know that this will take plenty of work, because recovering from a bankruptcy is never easy.
However, if you committed any type of fraud, dishonest or criminal actions during the bankruptcy period, you should know that your Official Receive can still impose a sanction such as a BRU or BRO. They have the possibility to do this for up to 16 years since the date your bankruptcy period started.
It means that the phantom of bankruptcy will still chase you and even damage or destroy all you have worked so hard to rebuild.
Consequences of Bankruptcy for a Lifetime
The consequences of bankruptcy won’t last forever, because as long as you follow all the restrictions and rules without fault, then you will be able to eventually rebuild your credit, improve your lifestyle quality and even land a good job or start a new business. It’s not the end of the world, but you need to be aware that it will take a lot of work, more than you can imagine.
Nonetheless, it’s worth mentioning that your bankruptcy will stay forever in The Gazette records. Even though this is not a relevant factor for lenders or employers, it’s still a bit of information that could be used against you in the future.
If you want more information in order to analyse the pros and cons of bankruptcies in the UK, then here you have the answers to the most frequently asked questions.
Can you live a normal life after bankruptcies?
Yes, you can resume a normal life, but it will take a lot of work as you will need to concentrate on restoring your credit and may find it more challenging to obtain job in some industries. For this reason, experienced debt counsellors suggest exploring other options such as an IVA, DMP, or DRO, prior to declaring bankruptcy.
Can you ever recover from bankruptcies?
Sure, but it's a challenging route to take since, even if your bankruptcy is removed off your record during the next six years, it will likely follow you for a while. If you don't consider the advantages and disadvantages of declaring bankruptcy beforehand, it may be a bad decision that makes it difficult for you to get new credit and affects your employment.
Do you lose your credit cards after bankruptcies?
Indeed, you will forfeit your credit cards upon the issuance of a bankruptcy order. In addition, you will have to follow the bankruptcy regulations, which include avoiding obtaining credit for amounts greater than £500. This will make it harder for you to be accepted for a new credit card.
How long do bankruptcies last in the UK?
You will be regarded as a "discharged bankrupt" once the bankruptcy procedure has been completed, which typically takes 12 months. However, in order to receive a successful discharge, you must abide by the restrictions and guidelines set forth in the bankruptcy order. It's also important to bear in mind that your bankruptcy will remain visible on your credit report for 6 years even after it has been discharged.
Do you still need to pay debts if you go bankrupt in the UK?
Yes, as insolvency in the UK does not mean total debt elimination. Consult a third-party debt expert or insolvency practitioner to accurately determine which debts are dischargeable under a bankruptcy order and which ones are not.
Can you ever take out a new loan after bankruptcy?
You are free to obtain any kind of new loan following the discharge of your bankruptcy. This includes credit cards for the first time as well as personal loans, payday loans, mortgage loans, and mortgage loans on a home. But before your bankruptcy is over, you'll have to wait at least 6 years.
Can bankrupts have a bank account in the UK?
Yes, even after being declared bankrupt, you are still permitted to maintain a bank account. The bank will, however, have the final say in this matter because they have the option to reject your application depending on your present situation. In the UK, it is actually more difficult for those who have filed for bankruptcy to obtain a new bank account.
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