If you’re struggling with overwhelming debt, you may be wondering if bankruptcy is an option for you. Understanding the criteria for bankruptcy could be the first step towards financial relief. Whether you’re facing insurmountable credit card or personal loan debt or you’re unable to meet your financial obligations due to job loss, ill health or divorce, it’s important to find out what your options are in order to get your situation under control.

In this guide, we help you to get to grips with bankruptcy eligibility. Here you’ll find out about the key requirements for declaring bankruptcy, alternatives for those who are ineligible and next steps to take if you do meet the criteria. 

Introduction to Bankruptcy Eligibility

Bankruptcy is a legal process that involves debts that you cannot pay being cancelled or written off. It allows people who are in debt to have the opportunity for a fresh financial start. However, it isn’t without long-lasting consequences so it’s important to understand the pros and cons of bankruptcy before you come to a conclusion on whether it is the right option for you. 

It should also be noted that not everyone can qualify for bankruptcy. Eligibility depends on a variety of factors, including how much you owe, the value of your assets and where you live.

Key Requirements for Bankruptcy: Can I file for bankruptcy?

You may be eligible to file for bankruptcy if: 

• you are insolvent – this means that you must be able to prove that the amount you owe is greater than the value of your assets
• you are able to pay the bankruptcy fee, currently set at £680. 

Residency

If you are applying for bankruptcy in England or Wales, you must live there currently or have lived or had a business there within the last three years. 

If you live in Northern Ireland, you cannot apply for bankruptcy in England or Wales. Instead, you must file for bankruptcy in Northern Ireland, which follows a similar procedure to England and Wales. 

If you reside in Scotland, you can apply for sequestration, which is the Scottish version of bankruptcy. 

Financial Situations That May Qualify

There are several financial situations that can lead to bankruptcy. Some can involve another party, such as a creditor or insolvency practitioner, making an application for bankruptcy against you. This is known as involuntary bankruptcy. Alternatively, if you meet the bankruptcy criteria, you may choose to apply for voluntary bankruptcy. 

Below we explore the circumstances that can result in bankruptcy in more detail.

You cannot pay what you owe

If you cannot pay your debts when they are due or the amount you owe exceeds the value of your assets, you may qualify for bankruptcy. You may find yourself in this position for all sorts of reasons. For example, you may have accumulated excessive debt due to overspending, job loss, unexpected medical expenses or other financial setbacks. 

In such circumstances, you might decide that bankruptcy is the best course of action for you. Depending on the specifics of your situation, bankruptcy could eliminate all or part of your debts or restructure your debts so they are easier to pay.

You owe a creditor at least £5,000

If you owe one or more of your creditors £5,000 or more, they can apply to make you bankrupt. They must be able to provide evidence to the court that you owe this money and show that they’ve already attempted to get you to repay your debt by giving you a statutory demand or attempting to enforce a court judgment against you. 

If a creditor is threatening you with bankruptcy, it’s important to get advice to help you decide whether bankruptcy may be a good option for you or whether you have grounds to challenge it. You can get free debt advice from places like MoneyHelper or you can contact our debt experts. 

You’ve broken the terms of an IVA

An Insolvency Practitioner (IP) could file for bankruptcy against you if you’ve broken the terms of an Individual Voluntary Arrangement (IVA). This is a legally binding agreement between you and your creditors to pay back all or part of your debts over a set period of time. IVAs are designed to make paying back your debt affordable. 

Common Reasons for Ineligibility

Bankruptcy is not always an option. For example, you will not be eligible for bankruptcy in the following circumstances:

• your assets are worth more than your debts
• you can afford to continue paying your debt 
• you cannot pay the bankruptcy fee (£680)
• the debt in question is owed by a company or partnership. Bankruptcy only applies to individuals. If a company or partnership owes more than they can repay, they will need to follow a different process, such as liquidation or winding up. 

Alternatives for Those Not Eligible

If bankruptcy is not the right course of action for you, you may want to consider one of the following alternatives:

• A Debt Management Plan (DMP) – This is an agreement between you and your creditors to pay all your debts. They are usually suitable when:
  • you can only afford to pay a small sum of money every month
  • you will be able to make repayments within a few months.

• A Debt Relief Order (DRO) – This is a legally binding debt solution that is designed to provide breathing space to people who meet certain criteria. A DRO may be a good option for you if:
  • you can’t pay what you owe
  • your debt is £50,000 or less
  • you have no more than £75 a month in disposable income
  • you don’t own your own home
  • you don’t have other assets or valuables worth more than £2,000 or a car that is worth more than £4,000.

• An Individual Voluntary Arrangement (IVA) – This is a legally binding arrangement between you and your creditors to manage and repay your outstanding debts over a certain period of time. While an IVA is in place, creditors should not charge interest on your debt or chase you for payments. You, as the debtor, are responsible for making the agreed repayments and informing your IVA provider if your income increases or if you receive any other money. You are not allowed to take out further credit while you have an IVA. An IVA may be suitable for you if:
  • you have debts in excess of £10,000
  • you owe money to at least two different creditors.

• An Administration Order – This can help deal with debt if:
  •  you have a county court or High Court judgment against you and you cannot pay your debt in full
  • Your debt is less than £5,000.

Next Steps if You’re Eligible

If, after seeking personalised debt advice, you’ve decided that bankruptcy is the right choice for you, you can start the bankruptcy process by applying online here in England and Wales. Before you begin, you’ll need the following documents:

• Proof of earnings
• Benefits or pension statements
• Bills
• Correspondence from a bailiff or enforcement officer.

There is a £680 fee to pay to make a bankruptcy application. This can be paid in full or in instalments if you can’t afford to pay it all in one go.

If you’re in Northern Ireland, you will need to fill out two forms to make a bankruptcy application. You can get these from the Bankruptcy and Chancery Division of the High Court in Belfast or from the Insolvency Service.

If you’re located in Scotland, you must apply for sequestration through an approved money adviser or insolvency practitioner. 

If you need help with a bankruptcy application, you can contact a debt adviser.