Is my debt written off if I go bankrupt

James Falla

• 31 Jan 2022

When you go bankrupt, 100% of your unsecured debt is written off. Amongst other things, this includes business debt or money you owe to HMRC. You will not have to make further payments towards it unless you can afford to do so.

Included in this article:

• How much debt is written off if you go bankrupt?
• Do you ever have to pay towards your debt?
• What happens to debt owed to friends and family?

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How much debt is written off if you go bankrupt?

Basically 100% of any unsecured debt you owe is written off when you go bankrupt. This includes things like rent arrears, council tax, money owed to HMRC and even solicitors and legal costs & fees.

Once you are bankrupt, whomever you owe money is no longer allowed to enforce payment. It is likely that they will receive little or nothing back of the amount they lent to you.

One of the advantages of bankruptcy is that all your unsecured debts are automatically included whether you are aware of them or not. This is the case even if you forget to write them on your application form. Even debts you do not know about or have forgotten about are written off.

You are also protected against contingent debt. This is money that you might end up owing in the future as a result of an agreement you signed before you went bankrupt. A good example of this is where you have a car on finance which is repossessed after you go bankrupt. Any debt outstanding after the vehicle is sold is still written off by the original bankruptcy.

Some debts are not written off if you go bankrupt. For example student loans and secured debts. Your mortgage must still be paid or the property it is secured against will be repossessed.

Do you ever have to pay towards your debt?

After you go bankrupt, you do not have to make any further payments towards your unsecured debts unless you can afford to.

The Official Receiver will review your income and living expenses budget and calculate whether or not you have any surplus income. This is money left over after after all your priority expenditures are paid.

If there is none, you will not be asked for further payments. 100% of your debt is written off (unless your income improves while you are still bankrupt).

Where you do have monthly surplus income, you will have to pay this amount to the Official Receiver. This is known as an Income Payment Agreement. It bears no relationship to the amount you owe. The payments lasts for 3 years only. After that they stop and you have nothing more to pay even if you still have a surplus income.

An IPA can be started any time during the year you are bankrupt if your circumstances change an your income improves.

What happens to debt owed to friends and family?

You may owe money to friends or family members. Given it is unsecured, this debt is also included if you go bankrupt. Because of this, the person you own money to can no longer force you pay it. In effect they have to write if off.

That said, you may want to do your best to repay money you owe to people you know. They may be relying on you to do so. Where this is the case, can pay still them in full. However, you will have to wait until your bankruptcy is over (normally after 12 months) to do so. Paying them while you are bankrupt would be considered a preferential payment and is not allowed.

So as not to involve family or friends in your bankruptcy, you do not have to mention them on your application. You can make a private agreement to pay them in full later.

Want to find out more about how much of your debt will be written off if you go bankrupt and whether you will have to continue to make monthly payments? For free, confidential advice call us (0800 044 3194) or complete the form below.