8 bankruptcy myths debunked

posted by in Living with debt

UPDATE 5 April 2016: This article was originally published in December 2011. The bankruptcy application process for people living in England, Wales and Northern Ireland changed in 2016. 

This week we’re investigating bankruptcy, to tie in with our new guide to personal bankruptcy. Today we’re looking at the myths that have grown around bankruptcy.

Bankruptcy doesn't mean an empty wallet

Bankruptcy doesn’t always mean an empty wallet

Bankruptcy is often a word that scares people. There are many myths surrounding it and a lot of these are widely believed by people looking for debt solutions.

When we recommend bankruptcy as the ideal solution our debt advisors are often met with the same set of questions; these questions are usually coloured with bankruptcy myths that people wrongly believed to be facts.

In this blogpost we’ll try and dispel the top 8 myths…

Myth 1: My name will go in the paper/my neighbours will find out

‘Bankruptcies’ used to have a section in your local newspaper. This wasn’t done to shame debtors but was to inform creditors that may not have otherwise been aware. Bankruptcy is rarely advertised in the local paper now unless it’s an exceptional case and/or the official receiver believes that other creditors in the community may want to claim (usually self-employed local business cases).

Your bankruptcy will be mentioned in the London Gazette, but this is a trade paper for creditors.

Bankruptcy is a matter of public record and it’s available for the general public to see on the Government Insolvency Service website. Interested parties would need to search for you by name. This also applies to other forms of insolvency such as IVAs and DROs.

Myth 2: I will lose my house

Not all bankruptcies result in people losing homes. If you have negative equity you may be allowed to stay in the property.

For the best advice contact us and speak to one of our bankruptcy specialists who can give free, tailored advice.

Myth 3: If I go bankrupt I won’t have to pay anything!

If you have any surplus income left over each month, you’ll be expected to pay it into your bankruptcy. This is called an ‘income payment arrangement’ and will last for three years. This happens to around 1 in 5 people* who go bankrupt.

The more surplus you have, the more you’ll have to pay. But the official receiver will take into account all your living expenses so you’ll only be asked to pay an amount you can afford.

* Insolvency Service stats based on bankruptcies in the last 3 years

Myth 4: Bankruptcy lasts forever!

Most bankrupts are discharged after a period of 12 months (although many have to continue to pay surplus income into the bankruptcy for a further two years).

Bankruptcy is listed on your credit file for six years and may restrict any credit products available to you during this period. Most modern mortgage application forms ask specifically if you have ever been bankrupt.

Myth 5: Creditors can’t make me bankrupt

If you’ve broken the terms and conditions of a credit agreement your creditors can petition for your bankruptcy. They can only do this however if you owe them more than £750, and this is increasing to £5,000 from October 2015.

However, bankruptcy from creditors is not common. They have to pay fees of over £1,000 so they’re only likely to try this as a last resort.

The most common way for a creditor to make someone bankrupt begins with them sending a formal demand for payment called a ‘statutory demand’, followed by a ‘bankruptcy petition’. Both of these are usually delivered in person. If you get a statutory demand or bankruptcy petition, get in touch with us straight away for advice.

Myth 6: Bankruptcy is heard in court with a judge – I’d be terrified!

Bankruptcy is done in the nearest county court to you that deals with insolvency, however it’s not done in a court room with a bevy of observers.

You may need to see a judge, but this is done in the judge’s chambers (his/her office) and all they want to be sure of is that you’re aware of your actions in going bankrupt and that you have been properly advised.

The next time you hear anything is from the official receiver (OR) who deals with your bankruptcy. The OR will usually conduct his/her work by phone.

Myth 7: You need an accountant to go bankrupt

If you’re self-employed an accountant may be able to offer some advice but most advice can be taken free of charge from us.

Some companies charge a fee for an ‘assisted bankruptcy’ service. This usually involves the firm charging for advice on how to fill in court forms. We offer this service free of charge.

Myth 8: I’ll get kicked out of my rented property

Most rental agreements have a section about insolvency and most of these agreements suggest that if you become insolvent that you must leave the property.

This wording is usually used to protect the landlord in case of non-payment of rent. As rent is a priority outgoing this will need to be paid and accounted for in the budget you put together with the official receiver. As long the rent is paid most landlords will not ask a bankrupt tenant to vacate a property.

And a bonus myth: I’ll never get another bank account

When you petition for your bankruptcy your bank accounts will be frozen. Some banks will not allow an un-discharged bankrupt to continue to bank with them. However, there are still banks that allow bankrupts to open basic banking facilities and operate them while un-discharged. We can advise on which banks to approach.

We hope we’ve managed to dispel some of the myths associated with bankruptcy but no matter what, it’s important that you seek free and independent advice before you decide this is the best solution for you.

If you’re worried about how bankruptcy could affect you, or whether it’s right for you, use Debt Remedy to see how we can help.

Matthew worked as an IVA drafter prior to working in social media. In a former life he wrote scripts for Eastenders, Emmerdale and Hollyoaks. He has 3 chickens, 2 dogs and a rabbit.

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Tags Living with debt
  • jennifer underhill


    I am bankrupt and it is discharged this month.
    I am also having a divorce (they are linked, the husband took out lots of debts, some in my name and some on the house) he lives in the house, I am in rented accommodation with our two children.
    Do I have any claim over the house or contents (I left with very little) as my half is technically owned by the receiver?

    • moneyaware

      Hi Jennifer,

      It would depend if the Official Receiver wants to sell these assets or receive payment for your share of them. There’s more information on how property is dealt with in bankruptcy on our website: https://www.stepchange.org/debt-info/bankruptcy-and-my-home.aspx.

      The easiest way to know for sure would be to contact the Official Receiver’s office and asking them.

      Kind regards


  • nigel

    i have employer sip shares some are available to sell now and some come available in another year. what happens with these shares if i go bankrupt? do i declare them all, or how many shares are available to sell?

    • moneyaware

      Hi Nigel,

      Thanks for posting.

      The shares could be sold as they may be considered an asset. The Official Receiver dealing with your bankruptcy will decide what happens to the shares, so it’s important to let them know about them.

      Kind regards,


  • Mel

    Hi. I’m a guarantor for some lease equipment for my husband business. He is a few days late and has never missed a payment. I have just had a statutory demand sent to me for the full amount of the loan. I have no way of paying it. The house has been mine for 20 yrs from a previous marriage. There is no equity in it and both my mortagages are interest only and one secured debt. Can the force me to sell my home to pay the 22k debt?. I’m really scared as I barely have enough to pay the bills as it is and my husband has not taken a wage fo the best part of 4 yrs

    • moneyaware

      Hi Mel,

      Thanks for posting.

      I’m sorry to hear about this situation and can understand you must be very worried at the moment.

      We’ve got a page on our website about what to do if you receive a statutory demand and in what situations your creditors can send one. You may find it useful to read. You can find it here:


      When you receive a statutory demand you’re usually given 21 days to pay the debt or come to an agreement to pay it, for example by instalments.

      It’d be worth getting in touch with the creditor to let them know how much you can afford to pay towards the loan.

      If you do nothing about the statutory demand and the situation ends in bankruptcy – you’ll normally only have to sell your house if there’s equity in it.

      You can read more about how bankruptcy affects your home on our website:


      I hope this helps but if you need advice please give our Helpline a call.

      Kind regards,


  • Dallas Stephens-Cox

    Hi. I have a creditor looking to make me bankrupt. I have no real assets but there is some equity in my house. I have 3 children the equity could possibly repay this singular deal, but not other debts….can one creditor so thos?

    • moneyaware

      Hi Dallas,

      I’m sorry to hear about this.

      A creditor can apply for bankruptcy as a last resort to get you to repay a debt. However, this means they have to pay the bankruptcy fees involved. Due to this, most creditors would only consider doing this if they’re sure you have
      enough assets or income to guarantee the bankruptcy will get them all
      their money back.

      We have a page on our website about creditors making you bankrupt, that you may find useful to read:


      I hope this helps,


  • Lou


    I owe £600k to a Cyprus bank. Seems that our offers to settle via a solicitor are failing. By the end of June a 3month stay (agreement with bank to not proceed with litigation in hope that agreements can be reached) will end.

    I am looking for advice whether to file for bankruptcy or something else. I don’t know where to start, but just want the nightmare to end.

    I have UK properties which I rent out + a home + pension + monthly income.

    UK rental properties: – There is no equity here because they are either in negative equity and have second charges on them to the value of a sum of money I owe a different creditor following a failed business venture. When they are sold the lender will be paid and then any equity paid to the creditor on the land registry document. This means there will be 0 to pay the Cyprus bank.

    Pension: – not retired yet, but not a massive pot.

    UK home: As the lender mortgage product would not allow a second charge a B133 Bilateral notice has been applied to the UK creditor. Not really sure what this means, but I guess it works like the above UK rental property situation. If i sell then there is nothing available for the Cyprus guys.

    We do not own our cars.

    If I add it all up including the £600k for Cyprus we can never repay it all in our lifetime. I believe my debt:income ratio is 190%

    Who can I talk to who can help me work out what is the best option?
    1. Do I wait for the bank to come after me in July?
    2. Do I file now for bankruptcy tell the bank I have started proceedings and there is nothing for them due to my debt ratio and hope they take the offer on the table?
    3. Is there another option?

    I have 2 children: 15 and 17 year old and don’t want to loose my house if possible.

    • moneyaware

      Hi Lou,

      As you may be aware as Cyprus is an EU member state, so any Cypriot debts are treated the same as UK debts in bankruptcy.

      If bankruptcy is the right solution for you the Cypriot debt would be included and you’d be protected from action in all other EU member states (apart from Denmark who negotiated an exception to this rule).

      The question here is where you are currently based, as that determines your eligibility for UK insolvency. Between EU members states, where you can go bankrupt is determined by the location of your ‘centre of main interest’ – this is usually where you run a business or live.

      If this is the UK then bankruptcy here may be a solution for you, however we can only recommend a debt solution once you have had an advice session as there may be an alternative solution for you.

      As your situation is fairly complex, it may be worth you calling our advice line rather than using on online debt remedy tool so we can answer all of your queries.

      Gather up details of all of your debts, income, assets and notes them down, then give us a call and we can go through a debt advice session on 0800 138 1111 to give you tailor made advice.

      I hope this helps, and this gets sorted for you.


  • peter stewart

    hi. my wife and i went bankrupt on 01/03/2011. this year experian and callcredit deleted this info on the six years exactly. we now have good credit scores because we have been paying our bills on time. on 01/04/17 my wife applied to natwest for a loan and was declined. reason bankruptcy on equifax a month after the six years. not happy but we are trying to get it sorted. my question is in three months and it being removed if she applys to natwest will they still have this info on the bankruptcy?

    • moneyaware


      Thanks for your comment.

      Once your bankruptcy is discharged and your defaults have passed the six-year mark you will find that they are usually no longer listed on your report. This doesn’t automatically mean that you will be left with a clean rating and be able to get credit again instantly.

      It’s a good idea to get copies of your credit files, check for any mistakes on them and ask for any errors to be corrected. There can also sometimes be a delay in your credit file reflecting the end of the bankruptcy, if these haven’t been updated after 3 months you should try and address this.

      After bankruptcy, ratings-wise you’re essentially starting from scratch and will have to take time to build a credit file that is attractive to lenders. Often, the only way to do this is to take a form of credit such as a credit card, use it regularly, never miss any payment and stay within the agreed limits, being cautious.

      We cannot advise you as to whether if she reapplies for the loan in 3 months whether this will definitely be approved.

      I hope that this helps.


  • David

    Hi there, I have a question about bankruptcy. This is not a case of me wanting to become bankrupt.
    I actually want to know who pays out creditors when a person does go bankrupt? Is it the government e.t.c?

    • moneyaware

      Hi David,

      The Government don’t pay money to the creditors in bankruptcy. Often creditors don’t get their money back, which is a risk they have to consider when offering credit to people.

      If someone goes bankrupt and they have valuable assets they can be sold and the money from the sale distributed between the creditors of the person going bankrupt. Fees are deducted by the person managing the bankruptcy in this situation, so it’s usually only a proportion of the money owed that goes back to creditors.

      There’s more information about bankruptcy on our main website, here: https://www.stepchange.org/Howwecanhelpyou/Bankruptcy.aspx

      Kind regards


  • Karen Stimpson

    My husband needs a debt solution nut we own our property. If I take over the house into my name only will it still be considered as an asset If he goes bankrupt? Currently I would say there is approximately £60k equity in the property. His debt is approximately 60k.

  • Karen Stimpson

    My husband may go bankrupt but currently our mortgage is joint. I am applying to take the mortgage into my name only…. his debt is 60k and current equity in property is approx. 60k. Will the property still be taken into account if he goes bankrupt

  • Jen

    Do savings get put towards bankruptcy, if you have no income and would need to use those savings to live off? (food, rent)?

    Also, what happens if you dont have an Income Payment Arrangement, but then you start earning income after bankruptcy is discharged – is that two more years of paying creditors?

    • moneyaware

      Hi Jen,

      Apologies for the delay in replying, it looks like we missed the notification for your message.

      Savings would usually be take to pay towards debts, but I can imagine if savings were needed to cover essential living costs then there might be some flexibility. It would be decided by the Official Receiver.

      An income payment arrangement can last for up to three years, they can start any time within the first year of bankruptcy up until you’re discharged.

      So if you’re discharged and start earning more you’d be OK but if you started earning more before you were discharged they could set one up for up to three years.

      There’s more information on this on our main website here: https://www.stepchange.org/debt-info/bankruptcy-income-payment-agreement.aspx.

      Kind regards


  • Simon Brett

    Someone went bankrupt owing me money 3 years ago. they are now rich and have bought a new expensive house. Can I now get my money back?

    • moneyaware

      Hi Simon,

      It would depend on the circumstances. If they were discharged from bankruptcy at the time they made their money then I doubt you’d be able to get any back.

      The way to know for sure would be to get in touch with the people that dealt with the bankruptcy, usually the Official Receiver’s office in the court where they declared bankruptcy.

      Kind regards


  • Sophia Reid

    I was made bankrupt a three months ago. I am currently unemployed and live with my very supportive partner, who pays all of the bills etc. We live in his house and so there were no issues with the bankruptcy with that side of things. Our finances were independent of each other.
    I am struggling to find employment. I know that I can’t be a company director but if my partner set up a limited company and he employed me to work for him would that breach any of the rules of bankruptcy. I can’t seem to find anything about it on the internet. Obviously, I would need to inform the Official Receiver that I was employed and the money I was earning. Thing is that currently, I am unable to contribute towards the cost of the bills but at least doing it this way I could be paid a minimum wage and work again and get on the ladder to full time employment and feel some worth?

    • moneyaware

      Hello Sophia

      Thanks for getting in touch. In theory there are no obvious reasons I can think of why you couldn’t go ahead with your boyfriend setting up a limited company and employing you. It shouldn’t contravene your bankruptcy agreement, as long you are simply an employee and declare your income, as you said.

      To be on the safe side, I’d suggest talking to your Official Receiver, to let them know your plan. They’ll be more familiar with your circumstances and be able to give guidance on the best way forward.

      Kind regards

  • Roger


    I am seriously considering going Bankrupt and need some advice.

    I applied for a Current Account with HSBC about 6 months ago as I only have a very basic account with Nationwide. It was declined as Equifax gave them a poor credit rating for me. I got my credit report from Equifax and got the incorrect information corrected by the creditors who’d logged them. I then checked my Credit report and it said “Fair”. Six months on and I checked my credit score on Equifax and it said 568 – Excellent. I went back to HSBC and they again declined the account, stating the Equifax hadn’t given them a good enough rating for me. I went home, checked again and it then said my credit rating was “Fair”???

    Back in 2012 I missed a few payments to creditors during a period of ill health. I have been extremely good at not missing any payments in over five years, my earnings have doubled and yet they still consider my credit rating as “Fair”. I have just been offered a new job but I need to start a limited company but I can’t do this because Equifax have their hands around my throat so to speak. I will not be able to start this job now and the Salary is £50k. I am now unemployed and I cannot pay my creditors. Equifax are either lying to me or lying to HSBC. They tried to cover up a massive data breach back in May where their flimsy IT Security allowed the personal information of around 43 million UK customers to be stolen.

    If I explain this to the Judge at my Bankruptcy meeting, will he be able to initiate legal proceedings against Equifax to recover loss of earnings they have caused me in order to repay my creditors? and award damages for the harm and distress that Equifax are causing me by holding information about me that is reflective of my financial position and earnings 5 years ago and not reflective of what my earning capabilities are today.

    Ironically, Equifax, an American Organisation, are telling British lenders that I am not worthy of credit, but American lenders don’t seem to have a problem giving me Credit Cards at 39% APR. It seems that they’re strangling the British Financial Institutions to feed their own greed.

    • moneyaware

      Hi Roger,

      I’ve not previously heard of credit reference agencies being successfully sued for providing information for creditors to use in a credit check. I wouldn’t expect it to be investigated as part of bankruptcy proceedings. If you wanted to investigate this further I think you’d need to seek legal advice and deal with it as a separate issue to any potential bankruptcy.

      I should also note that I don’t believe credit reference agencies hold data about people’s earnings, just a record of how people have managed their financial accounts. Typically income details is supplied by the applicant on a credit application and if proof is needed it would be taken from wage slips or bank statements.

      You mentioned that you’re currently considering bankruptcy. I’d recommend getting debt advice before making an application, so you can be sure you’ve considered all your options. We can help you with this. We can give you free and impartial advice and if bankruptcy is your best option we can talk you through the process. Here are our contact details: https://www.stepchange.org/Contactus.aspx.

      Kind regards