Bankruptcy is perhaps one of the best known debt management solutions and it is probably the route that most people would prefer not to take. But, the fact is that bankruptcy may well be the best option for many people, both for individuals and soletraders. This solution allows you to sort out your debts once and for all, usually within a year. So, should you declare yourself bankrupt?
Bankruptcy is one of the most effective yet extreme ways of freeing yourself from debt. Here you basically declare yourself bankrupt (or your creditors may petition to have you declared bankrupt) and your assets are used to pay off as much of your debt as possible. Once you are released from bankruptcy (usually after one year) your remaining debts will be written off. Let’s take a look at the bankruptcy process:
- You, or your creditors, make a bankruptcy petition to either your local County Court or to the High Court in London. The court will then initiate a bankruptcy order against you.
- There may be three fees payable here -- a court fee, an administration cost and a fee to swear your statement of affairs during the bankruptcy process.
- The court will then decide if bankruptcy is the right route for you to take. If it is then your bankruptcy order will be approved. If not, you may be recommended to take a different debt management route.
- If your order is approved then you will have to work with the Official Receiver to assess and wind up any assets that you have to go towards paying off your debts. In some cases you may be able to use a licensed Insolvency Practitioner here.
- Once your bankruptcy period is finished any remaining debts that you have will be written off.
What are the benefits to you?
Bankruptcy comes with a range of benefits that may make it the best solution for many people with serious debt problems. For example, bankruptcy can help you:
- Totally clear yourself from debt within a relatively short space of time and then make a fresh financial start. You will pay off some of your debts from your assets and the rest will be written off at the end of the period.
- Prevent creditors from chasing you for the money that you owe. Once you have a bankruptcy order in place they have to leave you alone.
Are there any drawbacks to bankruptcy?
Although declaring yourself bankrupt can be a quick and efficient way of sorting out your debt problems there are some disadvantages to taking out this kind of solution. Issues that you may want to think about here include:
- If you run your own business then it will generally be wound up. However there are solutions available to transfer your share of assets (for example, equitity in your home) in your partner to mitigate your any losses.
- Your assets will be used to go towards repaying what you owe. This could see you lose your home, car and other assets such as pensions etc.
- Other people will be able to see that you are in the bankruptcy process as bankruptcy orders are advertised.
- You will not be able to use standard bank accounts and all financial institutions that you use will be notified of your bankruptcy. You will also not be able to apply for new credit agreements over £500 unless you inform the lender that you are bankrupt.
- Your bankruptcy will show up on your credit history for at least 6 years which may make it hard to get new finance in the future.
- Some professions will not allow you to work within them if you are bankrupt and you cannot serve as a Director of a limited company.
- Bankruptcy Help and advice can prevent costly mistakes
Generally speaking there are no limits set on whether you can declare yourself bankrupt. However, if a creditor is trying to have you declared bankrupt then you need to owe them at least £750.
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