Bankruptcy

What is bankruptcy?

Bankruptcy is one way of dealing with debts you cannot pay. It should be considered a last resort when other options are not available.

You can petition for your own bankruptcy or you can be made bankrupt by creditors. It is a court order and once in place frees you from demands of creditors and allows you to move on. Your business and personal assets (including your home) are sold (except for those items necessary for you to work such as tools, books, car and other basic personal items such as clothing, bedding, furniture) and the proceeds used to pay your creditors. In most cases you will be discharged after one year.

Your bankruptcy will be advertised in the London Gazette and local and/or national papers. The appointed Official Receiver will ask for all records and paperwork regarding your finances and details of all assets. Also note that not all debts are included in the bankruptcy and you will need to maintain payments to these creditors.

Many people nowadays see bankruptcy as an easy way out. This is not the case and there are ongoing consequences which you should be aware of (see below).

Advantages of Bankruptcy

It can relieve the worries and stress of serious debt problems fairly quickly.
It prevents your creditors from pursuing the debt once the order is in place.
On discharge most debts are written off but there are exceptions.
You will probably not pay as much as with other options.

Disadvantages

Not all debts are written off. These include student loans, CSA fines and payment orders, mortgage lenders and other secured creditors.

You will not be able to arrange credit for more than £500 during your bankruptcy and will need to declare it to any lender if asked afterwards. This obviously affects your credit rating and credit may be difficult to get for some time afterwards.

You may not hold certain jobs or public offices or be a trustee of a charity.

Any assets that you have or come by during your bankruptcy must be notified to your trustee who may then use them to make payments to your creditors.

Your landlord will be notified.

All bank accounts and credit cards must be closed. You will be able to set up a basic bank account with no credit facilities. See the bank account page here.

*Remember you do not have to become bankrupt just because you have serious debts. You should always check the other options available which will normally not have such far reaching effects. Also check the bankruptcy annulment page.