Bankruptcy is an effective way of resolving your debt problems, but in reality, it should be the method of last resort because it can have serious consequences. While your bankruptcy is discharged after a year, your credit file will be severely affected for six years.
You should only look at bankruptcy if you can’t pay your debts and you can’t obtain a debt relief order or an individual voluntary arrangement (IVA). Get advice from Creditfix before you go any further so you’re sure you’re doing the right thing.
You can declare yourself bankrupt or you may find that a creditor makes a petition to make you bankrupt. If you decide to apply for bankruptcy yourself, then you’ll have to pay a £680 fee and fill out the forms on the GOV.UK website. The fee is for the official receiver (OR), the person who’ll handle your money, assets and creditors during your bankruptcy period. If you owe more than £5,000 to any one creditor then they can apply to make you bankrupt even if you don’t want this.
When you’re declared bankrupt, you must hand over control of your finances and assets to the OR, who will manage them. They’ll sell off property to help to pay your debt, freeze your bank account and take your bank cards, credit cards and chequebooks. Your own bank will decide if it’ll let you carry on using your accounts; very often you’ll be offered a basic account so you can receive earnings and benefits and pay your bills. Other disadvantages include:
- possibly having to sell your home;
- selling off belongings, especially valuable or luxury items;
- finding it very hard to get credit while bankrupt and for six years afterwards;
- if your income is high enough, you’ll still have to service some debts for three years;
- you may lose some of your pension savings unless you’re close to retirement;
- if you have a business, it can be folded and the assets sold;
- you have to follow a set of bankruptcy restrictions or face prosecution;
- your career may be harmed as some professions bar people who’ve been bankrupt, and
- your bankruptcy will be published in the public domain.
It’s not all bad. In fact, bankruptcy is the perfect solution for people who are really struggling to pay their debts. It can mean a new start and a new chance. The advantages include:
- bankruptcy is discharged after a year and then your debts are written off;
- you keep essential household items and any belongings or equipment that you need for work;
- you’re allowed a reasonable amount of money for living expenses;
- your creditors can’t chase you anymore as the OR deals with them, and
- you will probably feel a huge sense of relief.
During your bankruptcy you have to cooperate with the OR, even if it hurts to give up your fancy car… You also have to abide by your bankruptcy restrictions or end up with more restrictions which last for longer than a year.
You also need to find out if some of your debts aren’t covered by bankruptcy, such as magistrate court fines, as you’ll have to carry on paying them.