Bankruptcy

What is Bankruptcy? Bankruptcy is a legal process that can be started if you can’t afford to pay all of your debts. It can also be started by someone else if you owe them more than £750. Bankruptcy allows you to reduce overwhelming debt and make a fresh start. How a does Bankruptcy work? You can be made bankrupt either in one of three ways. Voluntarily Bankruptcy - you apply to become bankrupt yourself. Involuntarily Bankruptcy - a creditor you owe money (£750 Minimum) applies for your bankruptcy. The supervisor or anyone bound by an IVA applies for your bankruptcy. A bankruptcy works to discharge all debts that are part of the order. Most bankruptcy proceedings will include all debts rather than just a few. For example your mortgage, credit cards and even cars could be a part of the proceedings even if you are not delinquent on all of the debts..

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What are the advantages of Bankruptcy?

• Pressure is taken off you because you don't have to deal with your creditors.
• The money you owe can usually be written off.
• You are allowed to keep certain things, like household goods and a reasonable amount to live on.
• No minimum or maximum debt requirement.
• Creditors have to stop most types of court action following a bankruptcy order (but in some cases they will still be able to take your belongings away).
• It’s a chance to make a fresh start.
• You can apply for credit cards such as prepaid cards after a bankruptcy is discharged enabling you to repair your credit scores and history.
• It provides the debtor with a chance to dispute respective false claims from any creditors trying to collect more than the amount actually payable to them.
• Once the court declares a person to be bankrupt, an Official Receiver will take the power of the administration along with the decision-making about the repayment of the debt amounts. Such an action frees the debtor from further depression and stress in dealing with these matters.
• You will usually end up paying back a lot less than the money you owe.

What are the disadvantages of Bankruptcy?

• An individual’s credit rating will be affected for 6 years.
• One of the biggest consequences of bankruptcy is the loss of control it brings. If you declare yourself bankrupt you will lose control of all of your assets. You will also be unable to get any credit over £250.
• Your bank and building society accounts will be closed and your credit cards will be taken away.
• Debt and ill health are linked. Anxiety and depression are common amongst people facing serious debt problems.
• If a trustee considers that a debtor's conduct has been dishonest or blameworthy in some way, either before or during the bankruptcy, they will report it to the Accountant in Bankruptcy. The Accountant in Bankruptcy may seek restrictions on the debtor's behaviour which can last between 2 and 15 years.
• Many people who are heavily in debt refuse to go bankrupt even when it is their best option because they don't want the perceived stigma.
• Bankruptcy can result in you being forced to stop trading, and losing your professional status. It can adversely affect your employment or future prospects. It will place stringent controls on your financial affairs and wreck your credit rating for years to come.
• When you are declared bankrupt, you have to hand over all valuable assets (including your home) to the Trustee. If you are in the process of leasing or buying a product on hire purchase it will be taken away from you and returned to the original owner.