Considering Declaring Bankruptcy?
If your debts are too large to manage, bankruptcy could be the solution. It can give you the chance to wipe the slate clean, without debts hanging over your head.
Bankruptcy has a certain stigma attached to it which means that many consumers consider this as a last resort only, however it is a real alternative to other debt solutions and has a number of benefits, particularly if you have debts you simply cannot afford to repay.
As with any insolvency solution, bankruptcy can have a serious impact on your life and your future. You should always consider your options carefully and take independent advice before deciding that this is right for you.
What is bankruptcy?
Bankruptcy is an insolvency process in which a court grants that a person’s debts (or liabilities) are discharged (or written off) in exchange for that person’s assets (or property). If you have debts you simply can’t afford to pay back, you can apply to a court for bankruptcy.
You do not need to have additional income or any assets to apply for bankruptcy.
During the bankruptcy process, your assets and liabilities (i.e. what you owe) will be closely scrutinised. Control of the bankruptcy will be put in the hands of a trustee. Any asset which you have will be taken and sold to pay your creditors. There are however some exceptions.
The bankruptcy will not include certain assets, including any vehicle or tools you need to earn an income; any furniture, bedding or clothing needed by your family; any family pets.
If your income is above a certain amount, your supervisor may also apply for an income order to take a fixed sum from your income for up to three years.
You will always be allowed to keep enough of your income to live on – if your income goes down you can apply to the court to change the income order.
If your property is to be included in the bankruptcy, the trustee must ask the court for an order to sell within three years. If they don’t, then the property is yours again. If the property is sold, then any debts secured against the property will be discharged, otherwise those debts will still exist. There are also certain instances in which your house will be exempt:
- If your property is in joint names then only your portion of the equity can be considered
- If there would not be enough equity in the property to pay any debts secured against it.
Bankruptcy can be a voluntary or involuntary process. You can choose to apply for bankruptcy yourself; a creditor can also ask a court to make you bankrupt as long as you owe more than £5,000 to that individual company.
You will need to pay a fee of around £680 to apply for bankruptcy but you will not need to pay a fee if your creditors make you bankrupt.
When a person is declared bankrupt, a court issues a bankruptcy order. This lasts for 12 months after which time you will be officially ‘discharged’ from bankruptcy. This is your chance to make a fresh start, free of debt problems.
If you do not reasonably comply with the demands of your bankruptcy, then the court may extend this, but only where you have deliberately obstructed those demands.
Is bankruptcy right for me?
Applying for bankruptcy has a number of benefits for people struggling with debt problems. Crucially, it can end the pressure of being chased by creditors who must stop demanding payment and adding interest or charges.
During the year you are bankrupt, you may feel like you’re in limbo. You’ll have to cooperate with the courts and your trustee, but at the end of the bankruptcy order, your unsecured debts are written off, giving you a fresh start and the confidence to face the future.
There are of course a number of drawbacks to being declared bankrupt. The following are all possible depending on your circumstances
- If you own a property, it may have to be sold to help repay your debts – the good news is that if your house is sold, any debts secured against the property will also be written off;
- Some of your other belongings may have to be sold – you will not need to sell anything essential which you need to work or that your family needs to live;
- Being bankrupt will affect your credit rating. Details of your bankruptcy will also be entered onto the Individual Insolvency Register which is a searchable, public record;
- You may be barred from certain professions or from acting as a company director.
There may also be other serious consequences of bankruptcy, which can last long after you’ve been discharged. Please make sure you have taken additional advice about your circumstances particularly if you are a tenant, sole trader or living in the UK as an immigrant.
You will almost certainly face issues with your credit rating after bankruptcy. It could be affected for as long as six years, making credit more difficult and expensive to obtain. If you try to apply for credit of £500 or more, you’ll have to tell the lender about the bankruptcy. You will not be able to apply for credit whilst you are bankrupt.
Bankruptcy will not protect you from any criminal or fraudulent activity prior to, or during, the order. If you have committed a bankruptcy offence, the Insolvency Service may apply for a Bankruptcy Restriction Order which will extend certain restrictions for up to 15 years. This will not exempt you from any other prosecution.
It’s crucial to seek advice before applying for bankruptcy
If you’re considering bankruptcy (or any insolvency solution) as an option for resolving your debt problems, make sure you seek expert and impartial advice first.
Bankruptcy can have a huge impact on both your day-to-day life and your future, so it’s important not to rush into any decisions.
Before you consider any insolvency route though, it’s important to take a step back and make sure you’re aware of your rights regarding debt. Unless you’re completely satisfied that your creditors can provide evidence to prove that you owe them the amount they claim you owe, you should not pay them anything.
Many people do not realise that they have the right to challenge banks, other financial institutions and debt collectors over the debts they are said to owe. This is where we come in. Acting on your behalf, the experts at Consumer Law Barristers can ask companies seeking money from you to prove that the amount they are claiming is due. Using consumer protection legislation, we can challenge their claims. In the majority of cases (more than 95%), the companies we have challenged on behalf of our clients have not been able to prove anything is owed. Using this approach, we have been able to save our clients more than £2.5 million.
We know that dealing with debt can be extremely stressful, but even when you are under pressure, it is important not to make any rushed decisions that could ultimately make your situation worse than it needs to be. By coming to us for specialist legal advice, you can make sure your rights are protected and you don’t pay a penny more than you need to.
So, if you have creditors on your back and are considering bankruptcy, speak to us first. Call us on 0330 124 4252 or email email@example.com and one of our friendly team will get right back to you.
We offer free, no-obligation consultations and you won’t pay anything for our services until we’ve fully assessed your circumstances and are confident we can help. Where our solution is unlikely to be your best option, we’re happy to point you in the right direction.