Bankruptcy

Bankruptcy is an extreme measure. However despite being discharged from bankruptcy after 12 months you may have to make monthly income payments for 3 years.

It is important to point out that it has long lasting consequences. First, you would need to surrender your assets including your house, car, valuables, policies etc. Second, your bankruptcy would be visible on your credit report for six years, during which time you’ll find it difficult to receive any form of credit. Third, it may have serious implications for your employment and you could lose your job as a result of declaring bankruptcy.

How to declare bankruptcy?

If there are no options left to repay your debts, bankruptcy is the only remaining solution. You can voluntarily opt for bankruptcy; alternatively, you may be forced to declare bankruptcy by your creditors, subject to the condition that you owe them at least £750. You can also be made bankrupt by a supervisor or anyone bound by an IVA if you fail to abide by the terms of the arrangement. Finally, if you refuse to acknowledge the bankruptcy proceedings initiated against you, you will receive a bankruptcy order.

To declare yourself bankrupt, you would need to fill in a debtor’s petition and then present it to your local county court. You will need to pay court fees of £150 and charges for the services of an Official Receiver, which usually amounts to around £360.

Once you are declared bankrupt, all your debt, except student loans, will be written off. However, your house and other assets such as car(s), life insurance plans etc can be sold to pay off your creditors.

Qualifying factors for bankruptcy

• The most obvious factor that qualifies you for bankruptcy is insolvency, which means that your debts have to be greater than the total value of your assets.

• If you are filing for bankruptcy on your own, you would need to provide evidence of insolvency such as proof of income, details of your monthly expenditure and the details of the debts you owe.

• You are unable to repay your debts as per the monthly repayment schedule agreed upon with your creditors.

• To qualify for bankruptcy, you must have at least £750 worth of unsecured debt with a single creditor. Over and above this, you may have much more debt than this with several independent creditors.

Advantages of bankruptcy

• At the end of the bankruptcy period, almost all your remaining debts are cleared.
• It frees you from overwhelming debts so you can make a fresh start, subject to conditions.
• It provides peace of mind and possible automatic discharge after one year, or even less in some cases.

Disadvantages of bankruptcy

• You stand to lose your home and other valuable assets such as car, insurance policies etc.
• Your credit ratings will be affected which means it would be difficult for you to obtain credit.
• Depending on your profession your job may also be at risk. For example a lawyer or an accountant would lose their license if they were declared bankrupt.