What is bankruptcy?
Bankruptcy is a court order you can apply for if you have unmanageable debts that you are unable to repay. As part of the process, your assets will be distributed and sold amongst your creditors.
Usually, your bankruptcy is discharged at the end of 12 months, meaning anything you still owe is written off. However, in some circumstances, you may be required to keep up payments for three years via an income payment order.
Bankruptcy has no minimum requirement, however, if a creditor was to file for bankruptcy, then the debtor would need a minimum of £5000 debt with that individual creditor. The process itself costs £680, but you can pay this to the Insolvency Service in affordable instalments
There are certain advantages to going bankrupt, which include relieving the pressure of having to deal with creditors, being allowed to keep what is known as ‘exempt goods’ such as tools to do your job or a car with a value of under £2,000 and the fact that you are allowed to keep some of your income.
All this considered though, there are plenty of disadvantages as well, including the fact that you could be asked to make payments towards your debts for as long as 3 years (if your income is high enough) and it will be more difficult for you to take out credit whilst bankrupt.
Your credit rating will also be affected for 6 years.
Other potential implications include legal limits on how much you can borrow without notifying lenders that you’re bankrupt, as well as the potential of losing your home if it needs to be sold.
Bankruptcy may be the best option for some people, whereas it could be by far the worst for others, and each case has to be considered on its own individual merit. Click here for a checklist to see whether bankruptcy could be right for you.
There are lots of options out there for people in debt, but the timeline for how a person goes about declaring bankruptcy is laid out in the steps below:
- Step 1: make sure bankruptcy is the right option for you
- Step 2: complete the bankruptcy form and pay the fee
- Step 3: withdraw some money for your living costs
- Step 4: submit the application
- Step 5: wait for the adjudicator’s decision
- Step 6: bankruptcy order is made
- Step 7: co-operate with the official receiver
- Step 8: open a bank account
- Step 9: discharge from bankruptcy
Finally, let’s look at a few Benefits and Considerations for Bankruptcy:
|In most cases, outstanding debt is written off after 12 months.||You cannot use your bank account or credit cards during the process.|
|Creditors must also stop demanding payment, charging interest and adding other charges.||Your details will be added to the Individual Insolvency Register.|
|You won’t receive any further contact from your creditors.||Your personal assets may be sold to repay creditors.|
|You’re allowed to keep some of your assets including vehicles worth less than £3000, tools needed for work and household items.||You cannot act as a company director and will need court permission to take any part of a managing a limited company.|
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