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7 Major Consequences of Personal Bankruptcy

An Image of a Bankruptcy Petition

Sometimes declaring personal bankruptcy can seem to be the only realistic option for anyone faced with an overwhelming amount of debt. However, one does need to take into account all the consequences of bankruptcy.

Below we have identified a list of seven of the major consequences that you need to seriously think about before you choosing this extreme option.


No. 1 – You may lose your homeAn Image of a House

There is a possibility that your home may be sold by the official receiver to pay back the bankruptcy debts.

The house may be saved if the legal title can be sold to a partner. The sale can also be delayed up to a period of 12 months if an individual needs to organise a new place for a child to live.

If you are renting a house, some of the lease agreements carry a provision that person may be asked to vacate the house by the landlord if the tenant is declared bankrupt. It depends on the individual lease agreements.

The Citizen’s Advice Bureau take a closer look at this very real risk in the following article – Will you lose your home? – bankruptcy


No. 2 – Getting future mortgages may be toughAn Image of a mortgage contract

Getting a mortgage after declaring bankruptcy can be extremely tough. Whilst some lenders may be willing to lend money after you have declared bankruptcy, there is a very strong possibility that you will be expected to put down a large sum of money as down payment which can be a minimum of 40% of the house value and may go higher.

The Express covered this as one of their mistakes to avoid. For more on this, please check out ‘One of THESE innocent mistakes could prevent you from getting a mortgage


No. 3 – It will leave a deep mark on your credit recordAn image of a credit score

The credit file of a person carries bankruptcy for a period of six years after a declaration of bankruptcy. It means that even after an individual is discharged, it may be difficult for an individual to borrow any money while this information remains on credit file.

For more information on the effects on a credit file, please check out the following link – https://ico.org.uk/for-the-public/bankruptcy/


No. 4 – Closure of all bank accounts

An image of the NatWest logo

After declaration of bankruptcy, all the cheque-books, credit cards and bank cards need to be handed over to the official receiver. These accounts are going to be frozen. Although it is possible that your bank may decide to let you continue using the accounts going forward.

Opening a new bank account can be difficult though there are a few paid products available these days that act similar to a bank account but a small monthly fee is applicable.

The debt charity, Step Change, explore this along with some of the other expected fallout of bankruptcy. To find out more, please click here.


No. 5 – Employment consequencesAn image of a man sitting a job interview

Until the bankruptcy is discharged, one may not become a Member of Parliament, a solicitor, join police force or armed forces, school governors, a post office worker or a counsellor.

However, all the other employment options remain open other than those mentioned above.

AOL have explored that in greater detail in their article – Could debts stop you getting a job?


No. 6 – PensionAn Image of 2 Pensioners Working Through Their Bills

Depending on when you were declared bankrupt, what happens to your pension may change. It is possible that you may lose some part or complete pension, if the pension scheme is not approved by HM Revenue and Customs.

To see whether you may be impacted, please visit the dedicated area on the Pensions Advisory Service website by clicking here.


No. 7 – Bankruptcy restrictions can be extended up to 15 yearsAn Image of a Gavel

Bankruptcy comes with certain restrictions. Most of the cases of discharged within a period of one year after declaration but there are times when these restrictions may be extended. These restrictions include:

  • A person cannot borrow £500 or more, even jointly with another person without informing the lender about the bankruptcy.
  • A person cannot do any kind of business either directly or indirectly without telling others with whom the business is being done, about the bankruptcy.
  • A person cannot serve as a company director without the permission of the court. Also, a person cannot create a new limited company or manage a limited company.

Breaking these restrictions is a criminal offence and people may be persecuted for breaking these restrictions. As mentioned above, these restrictions usually apply for a period of 12 months after your declared bankrupt by the court.

These are usually extended when a person is not cooperating with the official receiver. It may also be extended due to some other factors mentioned such as indulging in fraud, gambling, loss of property without any explanation among others.

For more on this, please visit the official Government website by clicking here.


Be prepared

These are some of the consequences of bankruptcy that a person has to prepare for before submitting a formal declaration. As mentioned in the beginning, sometimes a person has no other choice to get everything in order and start living a normal life. The consequences mentioned above put a lot of restrictions on an individual to get back and running.

These consequences are fine when one has no other option. However, the best thing is to manage your finances to avoid having to make this decision.

If you have concerns about the impact bankruptcy may have on your business, the excellent Nancy Laws has written a great article covering the subject which was published on the Huffington Post website and can be accessed by clicking here.


The following video explores some of the wide ranging consequences of entering bankruptcy:

If you would like any further information about accessing the some of the best loan rates currently available, please take a look at the rest of our website.

Jon Edward
Jon Edward
Passionate about helping people find options, when on first glance there do not appear to be any.

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