Bankruptcy Debt Advice

What is Bankruptcy?

It's all too common for people to associate the phrase 'bankruptcy', with being heavily in debt. If you're struggling financially you may feel that because of the burden of debt and payments that are due that declaring bankruptcy is the only option. In certain instances, bankruptcy can be a good option, but before you make the final decision, you need the right bankruptcy advice. bankruptcy advice

Bankruptcy is just one way you can deal with debts you can't afford to pay back. It is effectively a court order that can be applied for if you believe you have debts which are unmanageable. Although it may be one of the best ways to free yourself of a large burden of debt, this decision should not ever be taken lightly.

In many cases, you'll be required to sell off your possessions like your home and any other assets that you own. If you own a business, you will likely be forced to close down your business and make your employees redundant.

Alternatives to Bankruptcy

There are a number of alternatives to declaring bankruptcy, and you don't need to file for bankruptcy just because you're in debt and are struggling to pay what is owed. IVA's, Trust Deeds and Debt Management Plans are just some of possible options available to you, enabling you to deal with all your debts in a more manageable way without having the restrictions on you that bankruptcy has.

IVA's

If you have debts over £6,000, you may very well be eligible for an IVA. In some cases, if you're in debt you may agree to an iva proposal by the creditors to pay a proportion of the money that you owe, and the rest will be cleared at the end of your payments. These are effectively known as individual voluntary arrangements or IVAs (in England, Wales and Northern Ireland) and a Protected Trust Deeds (in Scotland).

Debt Management Plans

If you're seriously struggling with debts, then a Debt Management Plan could be the right answer for you. if you're finding it difficult to make your monthly payments, a debt management plan may get you back on track with your finances.

What if you have no alternatives?

The reason bankruptcy exists is of course, if you have reached a position where you simply have no alternative choices open to you, as you cannot repay what is owed in a reasonable time frame, so it's an option you should carefully consider.

Why choose bankruptcy?

Bankruptcy is similar to an Individual Voluntary Arrangement (IVA), as both are forms of insolvency, whereby you are given debt relief in return for your agreement to certain terms. Under both of these options, you have protection from any legal action and at the end of the term, any of your outstanding debt will be written off. To start the process, you'll need to contact a licensed Insolvency Practitioner.

Benefits of bankruptcy

  1. Once the bankruptcy has been completed you'll be debt free, and no longer liable for any debts which were included in your bankruptcy proceedings
  2. You will have an automatic discharge after 12 months, or even less in certain cases

Downsides of bankruptcy?

  1. Your assets, for example, home and car, may be included and sold in order to raise money so that your creditors can be paid off
  2. Some professions are excluded: Armed Forces, Police Force, Local Council or Government.
  3. You will not be able to be act as a company director
  4. Members of your family, or employers could well be scrutinised in court, particularly if the Official Receiver believes it may help with their investigation
  5. As a bankruptcy order record will stay on your credit file for at least 6 years, it could be very difficult to get credit again in future

Bankruptcy Frequently Asked Questions

Where are bankruptcy orders made?

Bankruptcy petitions are generally presented in the High Court in London or at a county court near where you live or work (bankruptcy petitions may not be dealt with at all local county courts).

How long does a bankruptcy last?

A bankruptcy typically lasts for one year, but this term could be different depending on your own circumstances. Once this time period has elapsed, irrespective of what is owed, your bankruptcy will then be discharged.

Who deals with your bankruptcy petition?

There are two people involved in most bankruptcy petitions. There are:

1. Official Receivers

Official Receivers are designated to protect any of your assets; if you have no assets they will act as trustee for all your bankruptcy affairs.

2. Insolvency Practitioners

Insolvency Practitioner are appointed to sell off any of your assets (for example a house or car) in order to repay your creditors. After making a bankruptcy order against you, your creditors can no longer ask you for any more payments. All of your payments will now be handled by your Insolvency Practitioner

What happens to your assets?

Once you become bankrupt, the Official Receiver has the right sell off your assets to pay your creditors. There may be certain exclusions for items which are seen as necessary to live, e.g.:

  • Equipment for work e.g. tools or vehicles
  • Household items required by you and your family, e.g. bedding, clothing and furniture

For home owners, you could be required to sell off your property, but this depends on the owner, it's current market value, and whether you have any equity in it.

What happens to your earnings?

When you are bankrupt, the Official Receiver (OR), after taking your income and expenses (e.g. mortgage/rent and household bills) into account may decide on the nature and amount of the payments that should be made to all of your creditors. After you take bankruptcy advice, the OR may ask you to sign an 'income payments agreement' which commits you to paying a fixed monthly payment from your income for at least 3 years.

If any of your personal circumstances change, you will need to inform the Official Receiver, in order for them to review these arrangements.

What are the restrictions on getting credit during my bankruptcy?

During your bankruptcy period, you will be placed under a number of restrictions. One such limitation is you will be legally bound to inform lenders that you're bankrupt if applying for more than £500 of credit.

This means that until all your bankruptcy has been discharged, you're unlikely to obtain any credit whatsoever. This will typically from 12 months from your bankruptcy order's start date.

Does your bankruptcy affect your creditworthiness?

Your bankruptcy will remain on your credit reference file for a period of 6 years from the the bankruptcy order date, and it will impact your ability to get everything from a mortgage to a mobile phone contract. Even after you've been discharged and informed the credit reference agencies, your bankruptcy's record will still remain on your file.

Once you've been discharged from your bankruptcy you may ask your creditors to mark debts included in your bankruptcy as 'settled' or 'satisfied'. All your previous creditors who were included in the bankruptcy should be written to and provided proof of your bankruptcy discharge. They will then be able to change the relevant information on your credit reference file. After 6 years, credit reference agencies automatically removes the bankruptcy entry from your credit reference file.

Following your bankruptcy, when can you get credit?

One of the main consequences of declaring yourself bankrupt is it will have a significant knock-on effect on your credit rating. Applying for credit within 6 years of your bankruptcy order's date will mean any potential lender can see you've been made bankrupt. This may not mean you'll automatically be declined for credit, it's still likely to mean obtaining credit much more difficult.

You're likely to find organisations that may refuse to offer credit just because you've had a past history of becoming bankrupt. This is true if your bankruptcy happened quite recently.

If you do find a company willing to lend to you, its possible they'll charge higher interest rates, because you will be seem as a higher risk customer due to your previous bankruptcy.

The truth is that obtaining credit is very likely to become even more difficult whilst your bankruptcy order is still on your credit file.

What next?

If you're experiencing debt problems you may well be considering filing for bankruptcy. But, declaring yourself bankrupt could make a significant impact on your ability to get credit in future. As a result, it's important to speak with a debt and bankruptcy advice professional before you make any hasty decisions. There could be other options open to you that you simply hadn't considered that may not have the same impact on your credit rating.

Find out about the best debt management plans now.