Originally written April 2023. Last Updated March 2026. 

If you took out a Bounce Back Loan in 2020-2021 and cannot afford to repay it in 2026, you’re facing a critical question: will your Bounce Back Loan be written off, or are you personally liable?

You’re far from alone. Official Insolvency Service data shows that by March 2025, 113,413 UK companies with Bounce Back Loans had either dissolved or entered formal liquidation. Of these, 73,977 Bounce Back Loans (64.4%) formally defaulted and were written off when banks claimed repayment from the Government Guarantee.

The quick answer: Yes, government Bounce Back Loans can be written off for sole traders and limited companies — but only through formal insolvency procedures, not by waiting for government forgiveness or company dissolution.

Written by Steven Wiseglass, Licensed Insolvency Practitioner and Fellow of R3 (the insolvency and restructuring trade body). Steven leads Inquesta, a Manchester-based licensed insolvency practice regulated by the Insolvency Practitioners Association (IPA), with over 20 years’ experience helping UK directors navigate company insolvency and Bounce Back Loan debt.

What “Written Off” Actually Means

When directors talk about Bounce Back Loans being “written off,” they often mean different things. Some think it means the government will forgive the loan. Others believe that if they stop paying, the debt will eventually disappear. Neither of these is accurate.

“Written off” is an accounting term that describes what happens when a company enters formal insolvency and cannot repay all its debts. The Bounce Back Loan, like other unsecured debts, gets “written off” the company’s books after whatever funds are available have been distributed to creditors according to statutory priority.

Here’s how it actually works: When your company enters liquidation, a licensed insolvency practitioner is appointed to sell the company’s assets and distribute the proceeds to creditors. Secured creditors get paid first, followed by the costs of liquidation itself, then preferential creditors, like employees owed wages. What remains, if anything, goes to unsecured creditors. This bracket includes your Bounce Back Loan lender.

Therefore, if there’s £8,000 available for unsecured creditors and your company owes £50,000 on the Bounce Back Loan plus £30,000 to other unsecured creditors, those creditors receive 10 pence for every pound owed. The bank gets £5,000, and the remaining £45,000 is “written off.” The bank then claims this £45,000 shortfall from the Government Guarantee that initially backed the loan.

So yes, the Bounce Back Loan gets written off from the company’s perspective. But someone still pays it — the government, through the guarantee scheme that was built into the programme from the start. When Boris Johnson launched Bounce Back Loans in May 2020, Treasury estimates predicted that two-thirds of loans would never be fully repaid. The scheme was designed expecting widespread write-offs.

The Scale of Bounce Back Loan Write-Offs

To understand whether you’re facing an unusual situation or a predictable outcome, it helps to know how common Bounce Back Loan write-offs have become.

Official Insolvency Service data published in June 2025 shows that by March 2025:

This means that approximately 8% of the 1.4 million businesses that took Bounce Back Loans had closed by March 2025. That figure continues rising as companies that borrowed in 2020 reach the end of their six-year terms in 2026, and those that borrowed in early 2021 approach their final repayments in 2027.

The government anticipated this. The 100% guarantee to banks exists precisely because mass defaults were built into the scheme’s design. If you’re struggling, remember that you’re not an outlier — you’re part of a group of over 110,000 businesses that have faced the same reality, and others will face the same issues in the months to come. 

When “Written Off” Doesn’t Protect You

Here’s where the situation becomes more complicated. Whilst the company’s Bounce Back Loan debt gets written off in liquidation, that doesn’t automatically mean you as a director are protected from personal consequences.

Bounce Back Loans were issued without requiring personal guarantees. The government provided 100% security to banks, meaning the debt legally sits with the company, not with you personally. If the loan was obtained and used properly for legitimate business purposes, you should have no personal liability when the debt is written off.

Personal liability follows only when the loan was misused. If you withdrew Bounce Back Loan funds for personal purposes (paying your personal mortgage, funding holidays, buying personal vehicles unrelated to the business, etc.) the liquidator can pursue you personally to recover those amounts. The same applies if you paid dividends when the company lacked distributable reserves, made unjustified repayments to your director’s loan account, or continued trading when the company was clearly insolvent.

The December 2025 voluntary repayment deadline was the government’s final opportunity for directors who had misused funds to repay before intensive enforcement began. That deadline has now passed. As a result, directors facing allegations of misuse can expect Section 16 letters (notice of disqualification proceedings) within three-six months for clear-cut cases, with typical disqualification periods lasting 11-15 years for fraud-related matters, alongside compensation orders requiring personal repayment of misused amounts.

For directors who used their Bounce Back Loans properly but simply cannot afford repayment, the situation is very different. Banks will escalate collection through formal demands, statutory demands (giving you 21 days before a winding-up petition can be issued), and ultimately court proceedings. But if the company enters proper insolvency procedures and the investigation finds no evidence of misuse, the debt will be written off without personal consequences.

For comprehensive guidance on what to do if you can’t afford Bounce Back Loan repayment, including how to assess whether you’re in a proper use or misuse situation, read our detailed guide: Can’t Afford to Repay Your Bounce Back Loan? Director’s Options in 2026.

How Bounce Back Loans Actually Get Written Off

Understanding the mechanism matters because it affects what you should — and shouldn’t —do if you’re facing repayment difficulties.

Creditors’ Voluntary Liquidation: The Standard Route

The vast majority of Bounce Back Loan write-offs happen through Creditors’ Voluntary Liquidation (CVL). Of the 63,339 companies that entered liquidation (not dissolution) with Bounce Back Loans by March 2025, 58,655 chose CVL whilst only 4,684 were forced into Compulsory Liquidation. That’s a 92.5% rate of director-initiated action.

CVL means directors recognise the company is insolvent and voluntarily appoint a licensed insolvency practitioner to wind it up properly. You choose the timing, you select the insolvency practitioner, and you demonstrate that you’ve acted responsibly by following correct legal procedures rather than waiting for creditors to force your hand.

The insolvency practitioner investigates director conduct — examining whether the Bounce Back Loan was obtained and used properly — then sells company assets and distributes proceeds to creditors according to statutory priority. After this distribution, any remaining Bounce Back Loan balance is written off, and the bank claims the shortfall from the Government Guarantee.

Compulsory Liquidation: When Creditors Force Action

Some directors wait until creditors (usually banks or HMRC) petition the court to wind up the company. In such scenarios, the Bounce Back Loan will be written off through the same mechanism, but you lose control over timing and can’t select the insolvency practitioner. Courts and creditors also tend to view forced liquidation as evidence that directors may have acted irresponsibly, as they should have recognised insolvency earlier.

The 92.5% CVL rate among Bounce Back Loan cases demonstrates that most directors choose to act proactively rather than waiting to be forced.

What Doesn’t Work: Dissolution and Other Dead Ends

Some directors consider dissolving the company via Companies House strike-off to avoid formal liquidation. This fails. The government instructed banks to object to any strike-off application where Bounce Back Loans remain outstanding, and those objections are automatic.

Despite this, 51,413 companies with Bounce Back Loans attempted dissolution by March 2025. Under the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, the Insolvency Service gained expanded powers to investigate dissolved companies retrospectively. This includes pursuing directors for misconduct years after dissolution. If you dissolved a company with an outstanding Bounce Back Loan, you are not protected from investigation.

Similarly, hoping the government will announce blanket loan forgiveness won’t help. No such scheme exists or is planned. The 100% guarantee mechanism already handles defaults: the government pays banks when companies fail, but this happens through formal insolvency processes, not through administrative forgiveness.

Attempting to negotiate a settlement with your bank also won’t work. Unlike personal debts, where creditors might accept partial payment, banks holding Bounce Back Loans have zero commercial incentive to settle for less than the full amount when they can simply claim the shortfall from the government guarantee after liquidation.

banker-demanding-repayment-of-loan

Understanding Default vs Write-Off

When directors ask about Bounce Back Loans being written off, they’re often actually asking about default — what happens if they simply stop making payments.

Default means you’ve stopped making scheduled repayments and the loan account has fallen into arrears. Of the 113,413 companies that failed with Bounce Back Loans by March 2025, 73,977 (64.4%) formally defaulted before entering liquidation. This is the most common path.

Default itself doesn’t create personal liability, assuming the loan was used properly. The Bounce Back Loan was issued with 100% government guarantee and required no personal guarantee from directors, so defaulting is a company issue, not a personal one. However, defaulting triggers bank collection procedures: formal demands, statutory demands with 21-day deadlines, County Court proceedings, and ultimately winding-up petitions forcing compulsory liquidation.

The question isn’t whether default is “allowed” — it’s whether waiting for creditors to force compulsory liquidation is better than initiating controlled CVL whilst you still have agency over timing and process. The 92.5% CVL rate suggests most directors conclude it isn’t. A viewpoint we would generally concur with. 

Sole Traders: A Different Situation Entirely

Everything discussed so far applies to limited companies. If you’re a sole trader or self-employed individual who took out a Bounce Back Loan, your situation is fundamentally different and significantly more challenging.

Sole traders don’t have limited liability protection. As a result, there is no legal separation between your business finances and personal finances, which means you are personally liable for the full Bounce Back Loan amount regardless of how the funds were used.

For sole traders, the “write-off” routes are Individual Voluntary Arrangements (IVAs) or bankruptcy. An IVA is a formal agreement to pay creditors an affordable monthly amount over, typically, five years, after which any remaining unsecured debt — including the Bounce Back Loan — is written off. Bankruptcy involves selling your assets to repay creditors, with remaining debts written off after 12 months, though with serious consequences including severe credit score damage and potential loss of your home depending on equity levels.

Pay As You Grow: Relief, Not Resolution

Before discussing write-offs, it’s worth addressing Pay As You Grow (PAYG), which many directors explore when facing repayment difficulties.

PAYG offers three options: 

  1. Extending the loan term from six years to ten years (which reduces monthly payments but increases total interest paid).
  2. Taking interest-only payment periods of six months (available up to three times during the loan term). 
  3. Taking a full payment holiday for six months (available once).

Government figures show 35.35% of Bounce Back Loan businesses used one or more PAYG options, demonstrating how common repayment struggles are. But PAYG provides temporary cash flow relief. It doesn’t write off any debt, doesn’t reduce the total amount owed, and doesn’t address fundamental business viability issues.

If you’ve extended to ten years, used all three interest-only periods, taken your payment holiday, and still cannot afford repayments alongside your other creditor obligations, PAYG has served its purpose and been exhausted. At that point you’re facing insolvency, not a temporary cash flow problem, and formal insolvency procedures become your sole remaining option for writing off the debt.

What Happens During the Liquidation Investigation?

Directors often worry about what happens during the liquidation investigation. Understanding what insolvency practitioners actually examine helps distinguish between proper usage that creates no personal risk and misuse that creates significant exposure.

The investigation under the Company Directors Disqualification Act 1986 focuses on three areas for Bounce Back Loans specifically:

  1. Application Accuracy: Was the company trading before 1 March 2020 as the scheme required? Was the declared turnover accurate or reasonably estimated? Did you properly certify the company wasn’t insolvent when applying?
  2. Fund Usage: Were Bounce Back Loan funds used exclusively for legitimate business purposes like working capital, stock, equipment, wages, rent, and operational costs? Can you evidence this through invoices and receipts? Or were funds withdrawn for personal benefit like mortgage payments, holidays, or personal vehicle purchases?
  3. Director Conduct: Were dividends paid when the company lacked distributable reserves? Did you continue trading when clearly insolvent? Were creditors treated fairly rather than preferentially?

If usage was proper, the investigation concludes, a statutory report is filed noting no issues, and you move on without personal consequences. If misconduct is identified, the liquidator reports to the Insolvency Service, potentially triggering a variety of consequences.

The evidence you’ll need includes bank statements showing loan receipt and subsequent payments, invoices and receipts demonstrating business expenditure, payroll records, management accounts, and board minutes recording key decisions. Organising this documentation demonstrates you’ve acted properly and maintained appropriate records.

When You’re in the Final Repayment Window

For companies that borrowed in 2020, 2026 represents the sixth and final year of the original loan term. For those that borrowed in early 2021, final repayment approaches in 2027. If you’ve extended via Pay As You Grow, you might have pushed final repayment to 2030 or 2031, but if you’ve exhausted those options, you’re facing the reality with no further extensions available.

The question at this point isn’t whether Bounce Back Loans will be written off in some theoretical sense — it’s whether your company can realistically afford repayment alongside all other creditor obligations, or whether insolvency is inevitable.

If the latter, acting proactively through Creditors’ Voluntary Liquidation demonstrates responsible director conduct and maintains your control over timing and process. The 92.5% CVL rate among Bounce Back Loan liquidations shows this is the professionally recognised route. Waiting for HMRC to freeze your bank account or for creditors to issue winding-up petitions removes your agency and increases scrutiny of your conduct.

Why Inquesta for Bounce Back Loan Liquidations?

As a licensed insolvency practice led by Steven Wiseglass — a Fellow of R3 and regulated by the Insolvency Practitioners Association — we provide director-focused advice that balances legal obligations with commercial reality.

We help directors who used Bounce Back Loans properly for legitimate business purposes but now face genuine insolvency. If that describes your situation, we’ll assess your position honestly, explain whether a CVL is appropriate, and guide you through the process.

For uncertain cases, we conduct confidential risk assessments and advise on the safest course, whether that’s an insolvency procedure or referral to legal defence specialists.

Getting Professional Help with Bounce Back Loan Write-Offs

By March 2025, 113,413 UK companies had Bounce Back Loans written off through formal insolvency procedures. The government built the scheme expecting this. The 100% guarantee exists solely because mass defaults were factored into the programme from the start.

The question isn’t whether Bounce Back Loans will be written off. They will — over 110,000 already have been through proper procedures. The question is whether you’re following the correct legal process when your company becomes insolvent, and whether you’re acting whilst you still have control over timing rather than waiting for creditors to force decisions.

As a licensed insolvency practice led by Steven Wiseglass, a Fellow of R3 and regulated by the Insolvency Practitioners Association, Inquesta specialises in helping directors facing financial difficulties, including those who used Bounce Back Loans properly but now face genuine insolvency. We’ve handled liquidations across the North West and throughout the UK, including those involving Bounce Back Loan issues. 

Inquesta understands how banks treat these loans in liquidation (they claim from the guarantee rather than pursuing aggressive collection), what investigations actually examine (specific conduct issues rather than fishing expeditions), and how to protect directors through proper documentation and transparent cooperation.

What Happens Next

If you need comprehensive guidance on what to do, including detailed assessment frameworks, option comparisons, and understanding the post-December 2025 deadline consequences:

Read: Can’t Afford to Repay Your Bounce Back Loan? Director’s Options in 2026. Our comprehensive guide to your options. 

If you need immediate professional assessment of your specific situation:

We’ll assess if your company is genuinely insolvent or temporarily struggling, whether your Bounce Back Loan usage creates personal liability risk, and what options are appropriate for your circumstances.

Don’t wait until bank accounts are frozen or winding-up petitions are issued. The Bounce Back Loan can be written off through proper CVL procedures — but only if you act whilst you still have control over the process. Speak to a specialist as soon as possible and keep your options open.