What exactly is bankcruptcy?

Bankruptcy is probably the road of last resort for most people but may be the only option if you’re unable to pay your debts. If you miss repayments your creditors can force bankruptcy upon you by petitioning the court. During a bankruptcy your financial affairs are taken over by the court who are entitled to seize and sell your assets, including your house, to pay off your creditors.

Bankruptcy generally lasts for one year. The court will ask you to make contributions from your income for this year and potentially up to two subsequent years. Although actual bankruptcy is only a year it remains on your credit file for a minimum of six years during which time it will be very difficult for you to obtain new credit. This generally becomes easier as you near the end of the bankruptcy term, but options remain limited.

Advantages of bankruptcy

• Once under the protection of a bankruptcy order you’ll no longer be subject to collection actions from your creditors.
• Although the court can seize your assets you’re able to keep some of your household items such as beds, sofa and clothing.
• After the sale of your assets any remaining debt you have will be written off.

Disadvantages of bankruptcy

• You still have to make financial contributions during bankruptcy, and sometimes after.
• The cost of declaring bankruptcy is at least £600.
• You’ll have bad credit. New credit will be unavailable to you during the first year of bankruptcy.
• Although credit may be easier to obtain after that it’ll be on a very limited basis.
• Assets may be seized and sold, including your house.
• Details of your bankruptcy will become public on the online Insolvency Register. Your bankruptcy may even appear in the media.
• Bankruptcy does not clear all debts such as Student Loans, Child Maintenance Costs, and Court Fines.
• Employment opportunities may be affected, as there are certain jobs you won’t be able to do. These include: becoming an MP; a company director; a Justice of the Peace (JP); a member of the local authority or a chartered accountant or lawyer. You may be asked to leave your current employment and if you own a business, the Official Receiver may shut that down.

Bankruptcy is a serious solution that will have a profound affect on your ability to obtain future credit. It’s best to thoroughly evaluate all other possible debt options first such as debt management plans, an IVA or Debt Relief Orders which have a much lesser impact on your life.