What is bankruptcy?
Bankruptcy is the last resort in debt reconciliation and should only be considered if you are unable to resolve your financial crisis via another method such as an IVA/Debt Management Plan.
The process of bankruptcy has serious implications and many pros and cons. On one hand, it can offer you eventual freedom from insurmountable debts and protection from your creditors: while on the other hand, you could lose all (or most) of your assets (including your home, car, life insurance and pensions) and it will have further repercussions should you wish to obtain credit in the future.
How does it work?
The procedure starts with the submission of the relevant forms and fee (approx £450) to the County Court, who then decide whether or not to grant your petition. If your petition is accepted by the court, you will be contacted by the Official Receivers office and asked to submit detailed information regarding your debts and assets. Your income and expenditure will also be assessed - any surplus monthly income may be taken for up to a period of 3 years if the Official Receiver/Insolvency Practitioner deems it suitable.
The aim of bankruptcy is to raise funds through the sale of assets/contribution from income so that as much of your debt as possible can be paid off - leaving you with a 'clean slate' when your bankruptcy term is completed (when you are 'discharged'). This is usually after a period of 12 months, providing you have not been previously declared bankrupt. At the end of this period, you will be given indemnity from you creditors and they can make no further claim against you (although income contributions may run for an additional 2 years).
Advantages and disadvantages
Bankruptcy is a serious step and therefore it is important to understand the consequences it carries. It is also important to be aware of other potential solutions to insolvency before you make the decision to proceed.
The positive aspects of filing for bankruptcy include;
- Creditors will no longer pursue court actions to recover monies owed
- You no longer have to deal with your creditors, as your Insolvency Practitioner assumes responsibility on your behalf
- Usually, after 12 months, you can make a fresh financial start
- After you have been discharged, any money you still owe is written off
- Monthly contributory payments are reasonable and affordable - you will be left with enough money to live on
- You will no longer have the stress and burden of being in financial crisis
It is important to note, however, that there are some less desirable aspects of bankruptcy, such as;
- There is an initial fee to pay to initiate proceedings
- During the period of bankruptcy you will be unable to apply for credit - including loans, mortgages and even cheque books.
- Obtaining credit after you have been discharged can be difficult and expensive
- Assets such as your home and car can be seized to raise lump sums to pay off creditors
- If you are a business owner, you will likely have your business shut down and any assets sold off to raise capital
- Lists of individuals declared bankrupt are published on the internet, the London Gazette and your local paper
- Your job may be at risk (within certain career sectors) and you will be unable to assume the role of a company director
- Student loans, court fines and some other debts will not be included in the order and will not be written off
For free, confidential advice, or further information regarding bankruptcy and alternative debt solutions, please contact us.
