Should I Consider Bankruptcy and What Are The Advantages
It is all too easy for debt to get out of control. Mostly this is due to an unforeseen change of circumstance such as a bereavement, separation or divorce or loss of job due to redundancy or ill health. Whatever the reason it usually means that you have insufficient income to cover all your debt obligations and the balances outstanding start to increase due to accumulated interest charges.
Before considering bankruptcy, you should look at all the other options open to you to try and get back in control of your finances. These include debt management plans and an Individual Voluntary Arrangement (IVA) where you try to agree with your creditors a satisfactory repayment schedule.
However, if all these fail and your debts are so large, then bankruptcy may be a viable option.
Bankruptcy can provide a real sense of release and offers the chance to start afresh. It is possible to be discharged from the bankruptcy order in under a year, although where the debts are significant, it may take a little longer.
So what is bankruptcy and what are the advantages for you and your creditors?
Bankruptcy is an official and legally binding state declaring that you are insolvent. There are a number of ways that you can become bankrupt including: • Voluntarily – by applying to a court in person; • Involuntarily – by any creditor owed more that £750; or • The Supervisor of an IVA (if this is already in place).
It is not necessary for you to acknowledge or agree to the Bankruptcy Order. If a creditor or supervisor brings the order it is legally binding and, therefore, it is in your best interests to co-operate fully with the court proceedings. It is vital that you try to agree your financial state of affairs with your creditors before the petition is heard in court since trying to get changes made afterwards can be time consuming and expensive. The budgeting process will ensure that you retain sufficient income to live and pay current bills.
As can be seen, this is a complex and detailed legal process and you should seek assistance from an authorised and independent insolvency practitioner or solicitor before embarking down this route.
If you are declared bankrupt, there are a number or restrictions on what you can do. Firstly, and probably most significantly, you lose control of all your assets – including your home. An assessment of all your personal property will have been made at the petition stage and it is likely that you will have to sell anything of value to raise funds to pay creditors. For this reason alone, bankruptcy should be considered as a last resort option compared to an IVA or debt management plan.
Other restrictions include the type of work you can do, for example you will not be able to practice as a lawyer or accountant, be a company director, be part of the management team of a company, stand in local elections or as an MP or act as a Justice of the Peace. If you wish to start a business then you must seek the approval of all persons involved in the original bankruptcy order.
More practically, you will be restricted in gaining credit and your credit history will show your bankruptcy order for many years after thus impairing your ability to raise funds to buy a house, loans or credit cards.
The process is not free - charges will be made and added to your overall debt so make sure you understand the implications fully before selecting this course of action.
Once your assets have been scheduled, assessed, sold and the funds dispersed and provided you make the payments agreed under the bankruptcy order, you can be discharged within the time schedule agreed in the original petition. The big advantage here is that you are then able to start with a completely fresh and clean financial sheet. There are a few instances where even discharged bankrupts can be pursued for old debt so be aware of any future liabilities that you may have during the petition process.
Bankruptcy still carries a stigma with certain people in society and may affect your future livelihood in ways that you may not fully appreciate now. Even though it is more common and easier for people to wipe the slate clean through this process, it is a very public record of your past financial problems and will stay with you for many years. For this reason, it should not be entered into lightly and you should seek professional help before selecting this option. Impartial and free advice can be obtained from the Citizens' Advice Bureaux.