Pros and Cons of Bankruptcy
The ‘Pros and Cons’ of Bankruptcy
The word Bankruptcy fills most people with feelings of dread. It is hard to deny the fact that the word typically has negative connotations; it is usually associated with financial chaos and the diminishing reputations of those associated with it. In this blog, we uncover the pros and cons of Bankruptcy.
While people only focus on the negative aspects of Bankruptcy, there are several positives that can come as a result of considering it as a viable option.
There has been a steady rise in personal insolvency rates over the last couple of years, showing that more people are considering this as an option. If you are wondering whether Bankruptcy is a viable option for you, read on to find out about some of the advantages and disadvantages associated with Bankruptcy.
Positives of Bankruptcy
When the Bankruptcy order has ended, you can make a fresh start
Generally, after 12 months, if you have been fully compliant, you will be discharged from Bankruptcy. When this happens, you will be released from all debts included within your Bankruptcy. This is the primary advantage of Bankruptcy as it removes debts that you previously would not have been able to repay.
The pressure is taken off you because you do not have to deal with your Creditor
Known as an automatic stay, once this is issued, it stops all lawsuits and collections against the debtor. You will also stop receiving calls and letters that threaten to sue you.
You’re allowed to keep certain items
You may keep certain ‘exempt goods’ after declaring yourself Bankrupt. They can include possessions such as everyday household items, tools you need to do your job and a car, as long as it is essential or below a certain value (usually £1,000).
You may be able to keep your Home
Where there is Equity in the home, there are strategies to offer the best chance of retaining the family home. The Official Receiver/Trustee will take control of your assets but you can negotiate with them and ‘buy back’ your home (if it’s your main residential home). You can achieve this by negotiating a full and final settlement with them.
Any income payment arrangements only last 3 years.
If you are recognised as having ‘surplus income’ you may be asked to pay some of it to your Creditor, this is an Income Payment Order/Agreement. The good news is these can only last for a maximum of 3 years from their start date.
Negatives of Bankruptcy
Your home and assets are at risk
When you are made Bankrupt your home and assets are automatically handed over to the Official Receiver/Trustee appointed to oversee your Bankruptcy. If you have lots of assets or equity in your home, they will be sold to pay off your Creditor. This means you can lose your home, even if it is jointly owned e.g, family homes.
It will be more difficult to take out credit and your credit rating will be affected
If you want to take out a loan of more than £500, you must tell the lender you’re bankrupt. Your Bankruptcy is on your credit report for 6 years and harms your credit score. This means any lenders can see that you have been made Bankrupt. This makes borrowing much more difficult after you have been discharged.
If you own a business, you will be struck off as a Director
If you are a Director of a limited company, you must resign. You cannot be the Director of a company for the duration of your Bankruptcy.
Bankruptcy can affect your job
Some examples include, if you’re employed in a role that involves financial matters, you work in certain regulated professions that require you to be licensed or registered or you’re an Insolvency Practitioner. It may be more difficult to find employment in sectors such as the Civil Service, Police Service or certain Financial and Medical professions.
Surplus Income goes to the Official Receiver/Trustee
As mentioned above, any surplus income will probably be subject to an Income Payment Order/Agreement. This means that any additional income left over after living expenses must be given to the Official Receiver/Trustee.
Your Bankruptcy will be published
All bankruptcies are published in The Gazette, a publicly available magazine, which is available online. The Insolvency Register records your Bankruptcy, this is also available online. There are some rare exceptions when you can prevent this from happening but generally, notices are published as soon as your application is approved.
What happens at the end of bankruptcy?
Your Bankruptcy will normally end after a year – this is known as ‘discharge’. After discharge, you will not have to repay the debts covered by the Bankruptcy. However, you will still have to pay some debts like court fines and loans from the Student Loans Company. The Official Receiver/Trustee also has up to 3 years to deal with assets such as your home.
If you have been investigated and the OR/Trustee dealing with your Bankruptcy thinks you have been dishonest or reckless, they might ask the court to give you a ‘Bankruptcy Restrictions Order’. This means you will have to follow certain rules for up to 15 years. You can read more about the timeline of Bankruptcy here.
If you are worried about your financial situation or need Bankruptcy advice, you can call us on 0330 159 5820 or email us at [email protected], alternatively, you can submit a request for a call-back and a member of our team will be in touch as soon as possible.