Bankruptcy

Bankruptcy is often viewed as a last option, but for individuals facing serious financial hardship, it can provide a viable solution by completely wiping out the debts that are part of the process. This can offer a fresh financial start for those who are struggling to manage overwhelming debt.

What's Bankruptcy

When repaying your debt is no longer a feasible option, bankruptcy may offer a solution. It is a legal process initiated through a petition and granted by a court order.

The bankruptcy process can be initiated either by an individual debtor or by a creditor owed more than £5,000. An Official Receiver will evaluate your financial situation, and the order is fulfilled through a combination of selling assets and making regular payments, known as an Income Payments Order, if disposable income is available.

Typically, the debtor is discharged from bankruptcy after one year, while the Income Payments Order, if applicable, lasts up to three years. Bankruptcy records remain on the Insolvency Register for 15 months after discharge and on your credit report for six years.

Advantages and Disadvantages of Bankruptcy

There are many things to bear in mind when considering debt solutions. We’ve outlined some points that are important know with Bankruptcy:

Advantages

Bankruptcy allows for the elimination of your debts.
Creditors will be prohibited from contacting you directly.
The bankruptcy process lasts for one year, after which you will be debt-free.
You may retain your home if it has no equity and your car if its value is less than £1,000.
You will still be entitled to a reasonable amount of money for living expenses.

Disadvantages

If there is equity in your home, you may lose it, along with any other valuable assets.
There is a £680 application fee for bankruptcy, which must be paid before your application can be processed.
You may face the risk of job loss and future employment challenges.
Your details will be publicly listed on the insolvency register.
Your credit rating will be adversely affected for six years after declaring bankruptcy.

Bankruptcy Compared to Other Solutions

Bankruptcy vs. Individual Voluntary Arrangement (IVA)

Both of these solutions may enable you to write off large sums of debt. However, important things to consider are:

If you have disposable income, an IVA allows you to make manageable payments toward a portion of your debts for a period of five years.
In bankruptcy, an Income Payments Order may be issued, lasting up to three years.
An IVA protects your home and assets, while bankruptcy may result in the sale of these assets.

Here’s some further information if you are choosing between an IVA or Bankruptcy

Bankruptcy Vs. Debt Management Plan

These are many differences between these two solutions, and the main ones are:

Bankruptcy is a formal court order, while a Debt Management Plan (DMP) is an informal agreement.
Bankruptcy typically covers most debts, whereas a DMP only includes non-priority debts.
Bankruptcy is suitable for those with minimal ability to repay their debts, while a DMP requires you to make regular monthly payments.

Here’s additional information to consider when evaluating Bankruptcy versus a Debt Management Plan (DMP).

Bankruptcy vs. Debt Relief Order (DRO)

While Bankruptcy and Debt Relief Orders (DRO) are both solutions for managing debt, they serve different purposes. The key differences include:

A Debt Relief Order is intended for non-homeowners with limited assets valued at no more than £2,000.
The application fee for Bankruptcy is higher at £680.
There is no limit on the amount of debt that can qualify for Bankruptcy, while a DRO is only available for individuals with debts not exceeding £50,000.

Here’s additional information to consider when exploring Bankruptcy or a Debt Relief Order (DRO).

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Bankruptcy FAQ

Is Bankruptcy right for me?

If you are looking for the best debt solutions, it is crucial that you consider all options before making a decision.

We’d suggest you research all possible solutions, as well as seek debt advice from specialists to make sure that you are making the right decision for you.

Whilst Bankruptcy seems like a quick fix to getting rid of your debts, it does come with its downsides and you must know the risks beforehand.

However, Bankruptcy may be suitable if your debts are greater than £50,000 and you really have no spare income to go towards your debts via other solutions (IVA / DMPs).

What Debts Can Be Included With Bankruptcy?

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Which Debts Cannot Be Included in Bankruptcy?

You must be aware of the debts that will not be included in bankruptcy, as you will still be required to keep up repayments on these throughout the duration of the bankruptcy. Failing to do so may lead to additional financial issues. Debts that will not be written off by bankruptcy include: Mortgage repayments Student loans Court fines Child maintenance TV license arrears Any debts incurred through fraudulent means

Can I be made bankrupt?

Anybody could be made bankrupt.

If I declare bankruptcy, will I lose all my belongings?

No, only your most valuable assets will be subject to sale. However, you can keep the essential items you need for everyday living.