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When there’s no way that someone can repay what they owe in a reasonable period of time, they can look into insolvency – going through the courts to declare themselves unable to pay off their debts.
There are two forms of insolvency: an IVA and bankruptcy. Entering into either is a big decision and should not be done without serious consideration of:
a) the consequences, and
b)
the alternative debt solutions available.
The benefits of bankruptcy
- You’ll enjoy legal protection from any action by your creditors
- You’ll have a ‘light at the end of the tunnel’ – a date when you know you’ll be debt free
- Your outstanding debt will be written off when you’re discharged from your bankruptcy (probably in 12 months’ time)
- You’ll be able to make a fresh start, free of debt
Plus, with bankruptcy you’ll know that your debts are being addressed – nobody said bankruptcy was easy, but it can be a lot less stressful than wondering if you’ll ever be debt free.
The drawbacks of bankruptcy
- Your home (and any other valuable assets) will probably be sold so the proceeds can be paid to your creditors
- You’ll be unable to work in certain professions – as a local government councillor, for example, or a school governor
- Your credit report will register your bankruptcy for 6 years
- Bankruptcy is a formal process involving the courts
Plus, your bankruptcy will appear in certain newspapers. Many people think there’s a stigma attached to bankruptcy, and you may feel it affects your reputation.
How do I know if bankruptcy is right for me?
There’s no way to be sure without talking to a specialist, but you could start by answering the following questions:
- Do you have a limited disposable income?
- Are your assets (house, savings, etc.) of limited value?
- Are you unable to repay your debts in a reasonable timeframe?
- Are your financial circumstances unlikely to improve in the foreseeable future?
- Have you considered other debt solutions to see how their consequences compare with bankruptcy’s?
If you can answer ‘yes’ to all these questions, bankruptcy could well be right for you. To talk to a specialist about bankruptcy, call us on freephone 0800 634 0706 – or fill in the call-back form on this page, and one of our expert advisers will phone you at a time of your choosing.
How does the bankruptcy process work?
There are two kinds of bankruptcy: Voluntary bankruptcy and Involuntary bankruptcy.
Voluntary bankruptcy
File a bankruptcy petition at the County Court and the district judge will decide whether or not to grant the bankruptcy. You’ll have to pay a £335 Official Receiver’s deposit and a court administration fee of £150 – but the court fee may be waived if you’re on a low income or unemployed.
Involuntary bankruptcy
If you owe one of your creditors £750 or more, they can petition for your bankruptcy.
What are the alternatives to bankruptcy?
Bankruptcy may be the right solution – but not before you’ve looked into:
Click here to find more about how an IVA can help you.
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