Bankruptcy

If you're in debt and can't see a way out, personal bankruptcy might be an option. It can clear your debts and give you a chance to make a fresh start. However, it's vital you understand - and are prepared to accept - the consequences.

In the simplest terms, the bankruptcy procedure delivers two things:

  • It'll free you from your overwhelming debts so you can 'start over'.
  • It'll divide your assets (savings, shares, probably your home, etc.) among your creditors.

In most cases, this would mean you could start over with no assets and no debts.

What's the difference between bankruptcy and an IVA?

  IVA Bankruptcy
Duration Normally 5 years. Normally 1 year, although: payments can last for 3 years, a Bankruptcy Restriction Order can last up to 15 years - although this is only for exceptional cases.
Effect on home Very unlikely to force sale of home - but may require you to release equity. Must release your share of any equity over £1000. Unless a family member or friend can buy your 'share' of the property, you may have to sell your home.
Publicity Will not be advertised. Will appear in the publicly available Insolvency Register. Will be advertised in newspapers and available publicly on the Insolvency Register.
Effect on career No statutory restrictions, although some employment contracts may restrict certain roles if you have an IVA Bankrupt individuals are barred from certain positions, such as company director & local government councillor.

The pros and cons of bankruptcy

'Bankruptcy should always be the last resort as the debtor will lose control of their assets and will be subject to bankruptcy restrictions, potentially up to 15 years.'
The Insolvency Service (www.insolvency.gov.uk)

Bankruptcy - the pros

  • You'll be legally protected from action by your creditors
  • Your outstanding unsecured debt will be written off when the bankruptcy is over
  • You'll have a chance to make a fresh start, free of debt
  • You could be discharged in 1 year
  • You could reduce your stress levels - although bankruptcy isn't easy, you'll know you're dealing with your situation

Bankruptcy - the cons

  • You may lose your home, along with any other valuable assets (savings, shares, etc.)
  • Some debts cannot be written off (e.g. court fines and student loans)
  • Your bankruptcy will be publicised in newspapers
  • Your bankruptcy will stay on your credit report for 6 years, potentially adding to the cost and difficulty of obtaining credit.
  • You'll be barred from certain jobs: company director, for example, or local government councillor
  • You'll have to disclose your bankruptcy if you apply for credit over £500.

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Subject to eligibility and acceptance. Debt write off applies to unsecured debts and only on completion of an IVA, alternative solutions may be offered. Failing to complete an IVA once agreed could put you in a worse financial situation. Calls may be recorded and are usually free from UK landlines. Mobile phone users costs may vary and should check with their network provider.

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