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Bankruptcy – How does it work?

When you are declared bankrupt your assets rest with your Trustee in Bankruptcy who controls them prior to a sale. The purpose of selling the assets is to pay back all or part of your debts (known as creditors).



There are two ways of going bankrupt. The first is where you declare yourself bankrupt and the other is where someone you own money too, makes you bankrupt because you have not paid them.

The first thing that happens when you are declared bankrupt is that you will receive a letter from the Insolvency Service asking you to come in for a meeting. The purpose of the meeting is to find out what happened as well as what assets you own and what you owe. You will also be asked about your income and your outgoings in case you are made to make an Income Payments Agreement (this is where you will be asked to pay a monthly installment for up to three years).

Bankruptcy normally lasts for 12 months. If your bankruptcy is not complicated, you may not here from the Insolvency Service again until they send you a letter advising you that you have been discharged from bankruptcy.
Whilst bankrupt, you will be restricted from being a director and certain other occupations such as a solicitor or policeman. It will also have an adverse effect on your credit rating that can last up to 7 years.

If you own a home with equity or a half share in a home with your spouse with equity, usually the home will be sold to pay your debts. There are special rules about working out your level of equity. For example if you have re-mortgaged to pay money into your business this may count as you using up your equity under the rules for “equity of exoneration”.


If you have any questions about bankruptcy, a good starting point is the Citizens Advice Bureau. If you have been made bankrupt after being in business it may be worth getting professional advice from a Licensed Insolvency Practitioner as they may be able to help you annul the bankruptcy.

Licensed Insolvency Practitioner at Neville & Co.

Lisa is a licensed Insolvency Practitioner. She has been with Neville & Co since 2002 and has built up a wealth of experience in advising businesses and individuals in that time. She passed her insolvency license exams in 2008 and has been taking insolvency appointments since then.
She covers the South West area from Exeter to Penzance and also manages the office in Plymouth.