6 Reasons Why People Go Bankrupt in the UK

Bankruptcy can happen to anyone. It doesn’t matter where you’re from or how old you are, if you find yourself with more outgoings than income, you could be declared bankrupt. The repercussions of declaring bankruptcy are expansive, and can last for years, so bankruptcy should only be used as a last resort.

But what causes people to become bankrupt? We’ve looked at some of the most common reasons why people are forced to declare personal bankruptcy in the UK.

Using Credit For Living Expenses

Credit cards are useful for one-off purchases or to pay off monthly to improve your credit rating. However, some at-risk debtors find themselves relying on credit cards to make ends meet. This usually happens when people don’t have enough money at the end of the month for their living expenses, and use credit cards as a quick fix.

This soon turns sour, as the interest repayments on the credit cards starts to build, causing the borrower to struggle to make even the minimum repayments.

Student Debt

Unless you come from a very wealthy background and could afford to make it through university debt free, most graduates will finish their degree with a certain amount of student debt. The government student loan is paid back according to what you earn, however, more and more students are lured into even more debt by student credit cards and overdrafts.

While these may be low interest, or even interest-free, during your student years, once university has finished this can be a different story altogether, with interest rates on student debts rocketing and causing people to lose control of their finances.

Losing Your Job or Business

Many people who declare bankruptcy enjoy financial security while they’re in employment, but lose their job through illness or economic conditions. Due to lack of funds, they turn to using credit to pay off living expenses such as bills, and struggle to pay these debts once they return to work.


The financial implications of a divorce often go far beyond the division of assets. Solicitors fees, court fees and unexpected expenses can result in thousands of pounds being paid out. In these situations, it’s not uncommon for people to turn to credit cards to pay off various costs from the divorce.

Unfortunately, many people take time to adjust living off just one income instead of two, and succumb to bankruptcy not long after their divorce is finalised.

Unexpected Expenses

Perhaps the most tragic reason for becoming bankrupt is that which takes us by surprise. Natural disasters such as flooding, or criminal activity such as arson can have horrendous effects on our lives, and our finances.

Usually your insurance will cover you if anything like this happens. However, for the few that don’t have insurance, this can result in them permanently losing their assets and filing for bankruptcy.

Bad budgeting or overspending

In many cases, bankruptcy is unfortunately something that just couldn’t be helped. However, in some instances it can be the result of someone who is trying to maintain a lifestyle that they just can’t afford. Buying expensive and extravagant goods on credit, coupled with a poor or non-existent budgeting system, can lead to bankruptcy.

5 Tips to avoid bankruptcy

  • When possible, pay your credit cards off in full each month. Always pay over the minimum payment required.
  • Create a budget system, this can be in the form of a spreadsheet or even just a handwritten list.
  • If you’re in employment, save some of your wage each month to go into an ‘emergency fund’.
  • If you’re a student, don’t borrow more than you need to. Try to avoid student credit cards at all costs.
  • Never use credit to pay for items that hold no long term value.