Bankruptcy is a formal insolvency procedure – resulting in a binding, legal status – for individuals typically faced with insurmountable debts that cannot be repaid as they become due. Bankruptcy is often a last resort, in circumstances where an informal agreement, administration order, or IVA ("Individual Voluntary Agreement") is impractical or impossible. An individual may petition for his or her own bankruptcy or one or more creditors may petition for a bankruptcy order against a debtor, if he or she has unsecured debts of £750 or more. Bankruptcy usually lasts for a period of one calendar year and a debtor is required to provide full details of his or her financial situation, which provide the basis for assessment by the Official Receiver, or a trusted appointee, such as an insolvency practitioner.

Bankruptcy is obviously a serious matter and bankruptcy proceedings are not to be entered into lightly. Aside from the possibility of being publicly examined in a court of law, the adverse effect on your credit rating - during the bankruptcy period and for many years beyond - and the stigma attached to being declared bankrupt, you lose control of your assets, and there are numerous restrictions placed on what you can and cannot do. Once a bankruptcy order has been made, the Official Receiver can use your property, possessions and a proportion of your income to pay off your creditors; your home may be at risk, regardless of whether it is leasehold or freehold, or whether it is owned by you solely, or jointly with your partner. Your level of income, over and above essential living requirements, is also assessed, and, if there is money left over you may be asked to pay an amount deemed "affordable" into your bankruptcy via an "Income Payment Agreement".

There are, of course, certain items that are considered "essential" for your domestic or working, life – clothes, furniture, tools, vehicles, etc.- but seizure of your assets is not the only implication of declaring yourself, or being declared, bankrupt. You are forbidden for the duration of the bankruptcy period from becoming an MP ("Member of Parliament"), a JP ("Justice of the Peace") or a member of a local authority, and from practicing as a chartered accountant or lawyer. You also cannot act as a company director, or become involved in the formation, or management, of a limited company or, indeed, trade in any business under another name, without the express permission of the court, and without informing all relevant parties of your bankruptcy. Furthermore, you also cannot obtain credit, in any form, in excess of £250 without permission.

Bankruptcy law is, however, on the whole, designed to help honest debtors make a fresh start financially. So, provided that you are 100% truthful when you file Bankruptcy documents, and other paperwork, you may find that you can keep your home, car, etc. – without worrying that anyone is going to go through your home and property – whilst still taking advantage of the law to reduce your debt.