In March 2025, the well-known jockey Frankie Dettori announced that he was filing for bankruptcy after being unable to reach an agreement with HM Revenue & Customs regarding a large tax liability. What this highlights is that bankruptcy can potentially affect anyone if their finances are not properly managed. There were around 8,000 bankruptcies in England and Wales during the course of 2024 and a very similar number in 2023.
An individual can apply themselves to court for an order that they be declared bankrupt, or this step can be undertaken by a creditor of that individual, as long as the debt owing by one or more of the creditors is at least £5,000.
Once an individual is made bankrupt – which occurs as soon as the court makes a Bankruptcy Order against them – that person loses control of their assets. A Trustee-in-Bankruptcy (“Trustee”) is appointed and they will have control over the bankrupt’s assets. The Trustee also has the power to investigate the bankrupt’s affairs which can prove extremely invasive and stressful, particularly if there are questions over the propriety of transactions which the bankrupt has been involved in.
Individuals who are heavily in debt will sometimes see bankruptcy as a way to write off what might seem overwhelming liabilities. A Bankruptcy Order will usually last for 12 months (though that time frame can be extended if deemed necessary due to the conduct of the bankrupt, or if further investigations are required) which might sound like a short period of time to endure. It is important to understand however that even though a Bankruptcy Order generally only lasts a year, the impact of the bankruptcy on the bankrupt will likely last a very great deal longer.
For example:
- Any money held in a bank account at the date of the order (including any savings) will form part of the estate and will be available to the Trustee for distribution to the creditors.
- Any monies received from an inheritance or via gambling wins while the bankrupt remain subject to the Bankruptcy Order can be claimed by the Trustee.
- An undischarged bankrupt may not act as a director of a company, or be directly or indirectly involved in the management, promotion or formation of a company, without permission of the court.
- The Trustee can in certain circumstances seek an order for part of the bankrupt’s ongoing salary or income to be paid into the estate for the benefit of the creditors.
- Any property owned by the bankrupt (including houses, cars and expensive possessions) is liable to be sold to realise monies to pay the creditors.
- The individual’s credit rating will be affected and in most cases the bankruptcy will stay on the credit file for 6 years after the bankruptcy is discharged. As a result, the individual is likely to have problems in obtaining credit, such as a loan, during that time.
Pensions will not normally form part of the bankruptcy estate. In addition, you are allowed to keep enough money for day to day living costs. You are also entitled to retain your “tools of the trade” to allow you to earn a living, though what might be considered such tools will be considered on a case-by-case basis.
Bankruptcy is in many ways the cornerstone of our financial and civil justice system. Ultimately the threat of bankruptcy plays a major part in ensuring people meet their legal and financial obligations (without a properly functioning bankruptcy and insolvency system, very few people would make unsecured loans for example). As such, bankruptcy is indiscriminate and it is also supposed to hurt. Any suggestions that when the rich and famous declare themselves bankrupt they and their advisors are playing some kind of ‘get out of jail free’ card are wide of the mark. The far more likely reason is that they have been advised that there is no other route left open to them and that bankruptcy is coming, one way or another.
As Frankie himself explained: “Bankruptcy is a major decision and its consequences will affect me for many years.”
For more information on this or any other issue relating to bankruptcy and commercial disputes, please contact Andrew Shipp