Overview of the Bankruptcy Process in the UK

A concerning trend happening across the United Kingdom is the rise in individuals facing multiple bankruptcies. While we often think of bankruptcy in the UK as a one-time-only event, the reality is that multiple bankruptcies happen more often than most people realise.

Anyone who’s thinking of declaring bankruptcy or is undergoing the bankruptcy process, should know that avoiding bankruptcy again in the future isn’t as simple as being careful with money. Sometimes bankruptcy is a culmination of unavoidable circumstances that force even the most financially prudent individuals back into bankruptcy.

The bankruptcy process serves as a formal legal process designed to help individuals who find themselves unable to repay their debts. While often viewed as a last resort, it can offer a fresh start by providing a structured way to address overwhelming financial obligations.

This article will help you understand the bankruptcy process in the UK. We’ll cover the different types of bankruptcy, legal frameworks and implications, the consequences for your financial, professional and personal life, and we’ll share some steps you can apply to avoid bankruptcies.

Legal Framework for Multiple Bankruptcies

To begin, let’s look at the Insolvency Act 1986 that governs the bankruptcy process in the UK. A question that comes up a lot is can you go bankrupt more than once. Yes, you can. According to the act, there’s no legal limit on how often you can go bankrupt.

Not only is there no limit to how many times you can go bankrupt, there’s no mandatory waiting period. Which means declaring bankruptcy can be technically done again immediately after discharge.

So, what happens when you file for bankruptcy multiple times, and does it mean the more times you file for bankruptcy, the higher levels of scrutiny will be expended upon you? When you file for bankruptcy more than once, you’ll see:

• A more detailed investigation into your finances and assets
• Closer examination of your financial behaviour since your last bankruptcy
• Review of any patterns suggesting system abuse
• Investigation of any asset disposals before filing
• Assessment of your attempts to repay debts
• Consideration of whether declaring bankruptcy is truly appropriate versus other solutions

As a result of declaring bankruptcy multiple times, you’ll also face more severe consequences including longer restriction periods, more frequent financial reviews, and additional reporting requirements during your bankruptcy period, which could be extended up to 15 years through a Bankruptcy Restriction Order (BRO). While the law allows for multiple bankruptcies, the system is specifically designed to ensure that declaring bankruptcy remains a last resort rather than a convenient solution to financial problems.

What Types of Bankruptcies Can You Face?

• Personal Bankruptcy

Personal bankruptcy serves as a formal debt solution for individuals who’ve found themselves unable to repay their debts.

This process typically begins through voluntary filing or a creditor petition which happens for debts over £5,000. It provides a structured way to address overwhelming financial obligations. Once you’re declared bankrupt, an official receiver takes control of your financial affairs, including any assets that might be sold to repay creditors.

The standard bankruptcy process results in restrictions for a period of 12 months, and lasts on your record for six years, even after the restrictions have stopped.

• Business Bankruptcy (Insolvency)

The second type of bankruptcy is business bankruptcy, although technically a business cannot go bankrupt, but would be described as insolvent. Unlike personal bankruptcy, business ‘bankruptcy’ has a more complex web of procedures and considerations because of the involvement of multiple stakeholders, including employees, suppliers, customers, creditors, shareholders, and regulatory bodies.

When an insolvent company enters liquidation, it ceases trading and a licensed insolvency practitioner like Irwin Insolvency takes control to manage the orderly winding up of the business. This involves selling company assets, settling creditor claims according to a strict hierarchy of preference, and addressing employee rights including redundancy payments and outstanding wages.

During this process, directors could face scrutiny with their conduct up to the insolvency being investigated, which might expose personal liability for company debts in cases of wrongful trading or breach of fiduciary duties.

Understanding these two types of bankruptcy is crucial for anyone facing financial difficulties in the UK. While both processes aim to provide a structured approach to dealing with insolvency, they differ significantly in their complexity, timeline and implications.

Consequences of Filing for Bankruptcy More Than Once

Unlike a single bankruptcy, multiple bankruptcies create compound effects that can fundamentally and, in some cases, permanently alter your financial, professional and personal future.

Credit Score and Financial Reputation

Declaring bankruptcy more than once has a significant impact on your credit score because each bankruptcy is recorded separately on your credit report, with each record lasting at least six years. Multiple bankruptcies can create overlapping periods of damaged credit, extending the timeline of financial consequences.

For example, if you declare bankruptcy in 2022 it stays on your record until 2028, but if you declare another bankruptcy in 2025, it will stay on your record until 2031.

So instead of having just six years, it has grown into nine years. The two overlapping bankruptcy periods create an extended chain of negative records on your credit report.

During the overlapping periods, your credit score remains severely impacted, making it even harder to rebuild your financial reputation than it would be with just a single bankruptcy.

Repeated bankruptcies result in significant obstacles when dealing with financial institutions. Simple forms of credit and some essential services like securing rental agreements or opening a new bank account can become major hurdles because of your record.

Some financial institutions will even deny your applications outright or impose substantial premiums and elevated interest rates to protect themselves from the risk of doing business with you.

Professional Consequences

While the impact on your personal life isn’t ideal, the impact on your professional life can be even more devastating. This is especially true in fields with strict regulatory oversight like finance, law, or those requiring professional certifications. You could also, in worst cases, be permanently excluded.

Having multiple bankruptcies on your record can severely limit your employment options, earning potential and act as a barrier to career progression. In some cases, even if you manage to maintain your position, you’ll likely face ongoing restrictions, such as being unable to serve as a company director without first obtaining court permission.

However, not everything is bleak and hopeless. It’s important to remember the consequences of multiple bankruptcies are designed to be a deterrent not a punishment. If you’re facing financial problems after a previous bankruptcy, a licensed insolvency practitioner can help you explore all available alternatives before considering another bankruptcy filing.

Remember, instead of asking can you go bankrupt more than once, it would be wiser to ask how the compounding effects of declaring bankruptcy can impact your life opportunities in the future.

Reasons for Filing Bankruptcy Multiple Times

Often financial mismanagement is to be blamed for multiple bankruptcies, but there are other situations both within and beyond a persons’ control that can create a perfect situation for financial distress. Below are some possible reasons that could force a person to file for bankruptcy multiple times.

• Personal Circumstances

Someone recovering from their first bankruptcy facing unexpected medical issues, resulting in substantial bills and inability to work. Or individuals who successfully rebuilt their finances, only to have their stability shattered by the loss of a partner, forcing them to manage expenses on a single income.

• Business and Economic Factors

Business owners might learn and recover from one failed venture only to be faced with broader economic downturns or market changes such as global supply chain issues that are beyond their control. The pandemic clearly demonstrated how unexpected external factors could devastate even the most well-managed businesses.

Understanding these reasons help challenge the stereotype that multiple bankruptcies always result from reckless behaviour. It’s undeniable that personal responsibility plays a major role but is not the sole deciding factor in how many times you can go bankrupt.

How to Avoid Multiple Bankruptcies

We understand that facing financial difficulties after declaring bankruptcy can feel overwhelming. Yet instead of asking how often can you go bankrupt, consider it only as a last option with lasting consequences.

In order to avoid it, there are several strategies and resources available that can help you maintain or develop financial stability.

Financial education. Many individuals emerge from their first bankruptcy without fully understanding how to manage their finances effectively as they move forward. A person should take time to understand that budgeting principles isn’t simply about tracking expenses, it includes learning debt management strategies, understanding basic investment concepts, assessing financial risks, and the most important part that people fail to do – building and maintaining an emergency fund to cushion against unexpected expenses.

When trying to avoid declaring bankruptcy, professional support can make the difference between success and failure. People often fall into the trap of waiting for a crisis before seeking help. Consulting professionals such as a licensed insolvency practitioner, financial advisors and even debt counsellors can provide you with valuable guidance even when you’re not facing immediate financial difficulties. These professionals are trained to spot potential problems before they become critical and help you develop strategies to overcome them proactively.

Before considering declaring bankruptcy, explore all available alternatives. A structured approach to debt like individual voluntary arrangements (IVAs) will allow you to repay your debt while protecting you from creditor actions. There are also other more flexible arrangements such as debt management plans (DMPs) and debt relief orders (DROs) which are suitable for different situations.

The key to avoiding multiple bankruptcies lie in combining multiple approaches such as strengthening your financial knowledge, seeking professional guidance early, and understanding all available options before problems grow out of control.

Remember, financial recovery especially after declaring bankruptcy is a journey that requires patience, commitment and, often, expert guidance. If you’re facing financial challenges after a previous bankruptcy, reach out to our team of professionals who can help you explore your options and develop a sustainable path forward.