DEBT MANAGEMENT THE FACTS PART 3

Bankruptcy

Bankruptcy is one way of dealing with debts you cannot pay, it is however a frightening prospect for most people and there is still a huge stigma attached, not helped by the publication in local newspapers of your name and details.  In recent years the government has attempted to make bankruptcy a far less serious matter but it still has far reaching implications.

Anyone can apply for bankruptcy proceedings to begin for themselves, including partners in a company. Different rules apply for companies. If you want to make yourself bankrupt the first step is to  contact your local court and ask for details of the nearest county court that deals with bankruptcy.  If you do apply yourself to a court for bankruptcy there is a charge of £150 along with a deposit of around £300.

Creditors can also petition for you to be made bankrupt once they are owed more than £750. If you disagree with the creditors' claims you should try and reach an agreement before the bankruptcy order is made as trying to do so retrospectively can be expensive and difficult to overturn.

Once a bankruptcy petition has begun a court will make a bankruptcy order, it can still be made even if you refuse to acknowledge or agree to the order. It is therefore in your best interests to co-operate fully once the bankruptcy proceedings have begun, if you do not, a warrant for your arrest could be issued.  It is essential that you contact the Official Receiver within 21 days and provide full information relating to all your financial affairs; including a full list of your assets and what you owe your creditors.  You must cease to use all your bank accounts and not apply or use existing credit arrangements and you will probably have to make an appearance in court to explain why you have accrued so many debts.

The effects of bankruptcy are far less damaging now than in the past and the majority of cases will be discharged in around 12 months.  However the following are some of the more serious implications.  

Although it will depend on the level of equity in your property there is a serious risk that your home could be sold by the Official Receiver to pay back your creditors. If you rent your house then your landlord may decide to give you a notice to leave the house.

If you are employed your employer will be informed then you may have to pay an attachment of earnings for several years and your credit rating will be seriously affected.

If the Official Receiver believes you have not been honest or deliberately run up large debts he may issue a Bankruptcy Restriction Order (BRO) which can last up to 15 years, this may prevent you from obtaining credit or acting as a company director during this time and in the future.

The advantages of being made bankrupt when large debts have been accrued include freeing you from overwhelming debts so you can make a fresh start, normally within 1 year.  After your discharge all of your outstanding debt will be cleared leaving you the opportunity to start to rebuild.  For those with little or no assets who do not own their own home, declaring bankruptcy could be the best option.

Therefore if you are employed in a professional job or own your own home bankruptcy may not be the best way forward, other options include an IVA or Debt Consolidation which would be more beneficial in the long term.