Is Bankruptcy Right For Me?

Is bankruptcy the right choice?

If you have significant debts, i.e debts over £25,000,and do not own your own home and have no other valuable assets, then it is generally a better option to go bankrupt, as the restricted term is far less than an IVA - one year as opposed to five - and you will also pay far less to your creditors in the long run.

 When going bankrupt you lose control of any assets that you may have. This includes your home, particularly if there is equity in it, and your car if it is worth more than £2500. These assets will be seized by the court and shared between your creditors. So bankruptcy is an ideal option for non-homeowners and people with assets such as a business.   

Advantages of bankruptcy

•  - Once you are declared Bankrupt, the responsibility for repaying your debts is removed by the Court.
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•  - No further credit action is allowed to be taken against you BY LAW. Creditors are not permitted to contact you or demand
•  repayment of money. They are not permitted to add further interest or charges and can take no further action against you, BY LAW.
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•  - You will be free from the stress of constant calls and demands from creditors.
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•  -  All of your debts will be written off by the Court (there are a few exceptions - see Will Bankruptcy remove ALL of my debts?)
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•  - As the term for bankruptcy is usually 12 months, and in many cases significantly less, in a short time you will be free to make a fresh financial start.  This is a significantly shorter period of time than an IVA or Individual Voluntary Arrangement, which generally lasts for at least 5 years.
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Disadvantages of bankruptcy 

•  - On certain occasions, your bankruptcy order can be accompanied by an ‘Income Payment Order'. This essentially means that you will have to make payments to the court over a period of 3 years - if you can afford to do so.
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•  - Your home, car (if it is worth more than £2500) and personal belongings of high value will be sold to pay off your creditors.
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•  - Your credit rating will be damaged, but 1Stop Money can help you rebuild it with our Credit Accelerator programme.

•  - You may lose any assets acquired during your bankruptcy term, such as an inheritance or growth of value on your home or any insurance claims settled during that time.
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•  - Any business/es you may have will be closed and all employees immediately dismissed, but if you have an asset such as a business there are other alternative debt solutions that may benefit you more, such as an IVA or debt management plan.
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•  - Your creditors, landlords and banks will be informed of you status.
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•  - You will be required to comply fully with your appointed Official Receiver (OR) and/or Trustee - if you do not cooperate, your OR can apply for  an extended term of bankruptcy, which can be anything from 3 to 5 years or more.
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•  You will be prohibited for continuing to practice certain professions during your bankruptcy term:
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• 1. You will not be permitted to form, promote or manage a limited company (LTD) without permission from the court.
• 2. You will be unable to continue, or embark upon, acting as a company director.
• 3. You are prohibited from trading in any business under any other name unless you impart your bankrupt status to all persons involved.
• 4. You are prohibited from trading in any business under any other name unless you impart your bankrupt status to all persons involved.
• 5. You will be unable to act as a Justice of the Peace (JP).
• 6. You will be unable to practice as a Lawyer or Chartered Accountant.
• 7. You will be prohibited from becoming a member of parliament.
• 8. You will be prohibited from becoming a member of the local authority.
• 9. You will generally not be permitted a position in the police force or military.

In Essence - for the hundreds of thousands of people in severe debt WITHOUT SIGNIFICANT ASSETS, who do NOT work in one of the prohibited professions - bankruptcy or debt management  can be a more favourable option than an IVA. IVAs are beneficial to people who do own significant assets or who work in one of the professions outlined.

How long does bankruptcy last for?

Bankruptcy usually lasts between 6 to 12 months for first-time bankrupts, and longer if you have been bankrupt before. It is sometimes possible for the Official Receiver to rule that your bankruptcy should be even less - for example if your main income is a pension or state benefit or when your debts have been paid in full following the sale of any assets.

When the agreed term of your bankruptcy ends, and providing you have complied fully with your Official Receiver, you will be officially discharged. You will no longer be considered a bankrupt, and will not be subject to further bankruptcy restrictions.  

Remember - if you are not a homeowner, have no other significant assets and do not work in one of the prohibited professional sectors previously outlined - then bankruptcy could be the most viable financial option for removing the burden of your debt.

It is important to remember that the stigma surrounding bankruptcy is diminishing, and in a world burdened with debt it will inevitably continue to do so in the future.

For more information on filing for bankruptcy or other debt solutions, please click on the relevant links below.

What is bankruptcy?

The bankruptcy process

The history of bankruptcy

Will bankruptcy remove ALL of my debts?

Bankruptcy FAQs

Being discharged from bankruptcy

Bankruptcy Myths

Famous Bankrupts

IVAs

Debt Management

Debt Consolidation

Trust Deeds (Scottish Residents Only)

Alternatively, to discuss bankruptcy or any other debt solutions, please call 1Stop Money on 0800 012 4039, or fill in the online form and a 1Stop Money broker will contact you as soon as possible.                          

1Stop Money  - your first stop for finding the debt solution you need.