Everything you need to know about bankruptcy
What is bankruptcy?
Look up ‘bankruptcy’ in the dictionary, and you’re offered a very simple definition: ‘the state of being bankrupt’. But what does it mean? In human terms, you become bankrupt when you are unable to repay your debts; often referred to as becoming insolvent. It can put the assets you own such as your house, car or business premises, at risk.
In most cases, your unsecured debts will be written off after your yearlong bankruptcy term however your bankruptcy can be extended in certain circumstances. During the 12 month period, restrictions are put in place with regards to your finances and credit but bankruptcy can provide you with a fresh start after completion.
Am I eligible for a bankruptcy?
If you have debts which you cannot afford to repay and you cannot afford the monthly contribution required for an individual voluntary arrangement (IVA) or debt management plan (DMP) then a bankruptcy may be applicable to you.
You should also have lived in England or Wales for at least the past six months in order to be able to present your bankruptcy petition in the High Court.
The benefits of bankruptcy
- Your bankruptcy will show on your credit file for six years however your credit rating may improve following bankruptcy as some of your debts have been discharged and you can start afresh.
- An automatic stay will be triggered when you go bankrupt which will put a halt to all interest on your unsecured debt and court action against you.
- Bankruptcy will usually only last for twelve months providing a clear path to a debt-free future.
The drawbacks of bankruptcy
- Your high value assets, such as your house and car, will be considered by the court and your creditors so you will be at risk of losing some or all of them.
- Your credit rating will be severely damaged.
- You will have no access to credit above £500 without informing the creditor of your bankruptcy status.
- You will not be able to act as a company director or form a limited company for the duration of the bankruptcy.
- In certain circumstances, restrictions can last up to 15 years.
The bankruptcy process
Applying for bankruptcy is relatively straightforward. You can do so via the Insolvency Service where you will be asked to fill in a form stating income, debts and assets before being called for an interview.
You can also be made bankrupt by a 3rd party who is owed more than £5000 although CCJs and bailiffs are usually used first by creditors before petitioning for your bankruptcy.
The creditor will obtain a statutory demand so they can proceed to petition for your bankruptcy at court where a bankruptcy petition will be obtained. You will then be given a few weeks breathing space to pay your debt but if you don’t pay it, a bankruptcy order will be issued against you.
Is bankruptcy right for me?
There are six simple statements to consider before applying for bankruptcy:
- Your financial situation is unlikely to improve in the near future.
- The majority of your debts are unsecured.
- You’re comfortable with the prospect of walking away from your financial obligations.
- You simply don’t have enough income to cover your debt repayments.
- You have no other options.
- You don’t have sufficient assets which could be sold or refinanced to avoid bankruptcy
If all the above ring true, bankruptcy is very likely to be the right option for you to pursue.
When would a bankruptcy be extended?
As mentioned previously, your bankruptcy can be extended in certain circumstances such as not adhering to your duties in bankruptcy. It can also be extended if you are found to have acted carelessly or dishonestly either before or during the bankruptcy process from application to the end of the 12 month term.
For many people, bankruptcy my be the best route to a debt-free future. If you are considering this option or you are struggling with debt, contact us on 0800 901 2488 for advice and the best steps forward for your situation.