Pros and cons of bankruptcy


As with any big decision regarding your finances, it’s important to take a step back and carefully weigh up the pros and cons. When it comes to debt solutions, this is very important and bankruptcy, in particular, is a very serious solution that requires careful thought.

You need to weigh up whether the pros outweigh the cons and how the decision to take on bankruptcy will affect you. Here, we’ve broken down each for your consideration – you’ll also find more information about bankruptcy and how we can help you on our main bankruptcy page.

The pros of bankruptcy

  1. You may be debt free in just 12 months – You will usually be bankrupt for a year and at the end of this you will be effectively debt free and able to make a fresh start when it comes to your finances. This will also benefit your mental and physical health too as you will no longer need to deal with the worry of paying your debts.
  2. You won’t need to deal with your creditors – You’ll no longer need to speak to your creditors about your debts and they won’t contact you for payment again. It can be a great relief to stop worrying about the post when it arrives or the phone when it rings – and bankruptcy can offer this assurance.
  3. You won’t have to give up all your belongings – Many people go into bankruptcy believing that they have to give up all their worldly possessions but this is not the case. Only your possessions of substantial value will be used to repay your debts, including your home or a high-value vehicle.
  4. Any court action taken against is likely to be stopped – There’s a very high chance that any court action being taken in relation to your debts won’t go ahead if you are made bankrupt. This includes things such as CCJs, which are issued by the court.
  5. You can stay in your rented home – Unless your tenancy contract explicitly says you cannot stay there if you have been made bankrupt, you can stay in rented accommodation and continue making repayments.
  6. Creditors can’t take any further action against you – Unless their debts are secured against your property they will be unable to take any legal action against you or chase for payments.
  7. It won’t affect your partner unless you have joint debts – Many people worry that their partner will be affected, but they will only be impacted upon if the debts you are putting in your bankruptcy are jointly held or if your home or other jointly owned assets need to be sold.


The cons of bankruptcy

  1. You won’t be in control of your assets or finances – This means ownership of your property or any other assets will be in control of the Official Receiver dealing with your bankruptcy.
  2. Your bank account may be frozen – Once your bankruptcy has been approved your bank accounts may be frozen ready for the Official Receiver to review your finances. This can be a concern if you pay your bills via Direct Debit so it’s a good idea to set up a basic bank account which you can use for wages and bills.
  3. You may lose your home – To release equity to pay your creditors, your home may need to be sold. We have more information about bankruptcy and your home here.
  4. You may not be able to work in certain professions – Some industries do not allow bankrupt individuals to work in them. These include working as an insolvency practitioner, financial advisor and even professions such as the police force or with the Government. If you think you may be affected then check your contract before submitting an application for bankruptcy.
  5. Your bankruptcy will be made public – While friends and family won’t be able to find details of your bankruptcy unless they are specifically looking, your bankruptcy will be listed in financial paper The Gazette, as well as on the Insolvency Register. It’s unlikely it will be printed in your local newspaper though.
  6. If you have joint debts, the other person will become solely responsible – This means creditors will chase them for payment and they will be wholly responsible for what is owed. This can put a strain on a relationship and create stress for them, so bear this in mind.
  7. You will have to abide by a number of strict restrictions – These include being unable to borrow more than £500 credit without disclosing to the lender that you are bankrupt and being unable to manage a business or act as a director of a company without the permission of the Court. We have more details about bankruptcy restrictions here – it’s a good idea to read through these to avoid committing bankruptcy fraud and having these restrictions extended.
  8. You may have to make monthly payments to the bankruptcy if you have disposable income – Your Official Receiver will review your finances, and if after all of your income and expenses you have any disposable income, this will need to be paid into an Income Payment Agreement (IPA). This can last for up to three years.


If you have exhausted all other debt solutions, bankruptcy may be the only viable option. We recommend you speak to an impartial advisor who can offer free advice and we have a team here at PayPlan who can help. They can be reached via 
0800 316 1833 or you can fill in our contact form and receive a callback.