Is Bankruptcy The Right Option For Me?

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.

While people only focus on the negative aspects of bankruptcy, there are several positives that can come as a result of considering it as an 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 positives associated with it.

Positives

When the Bankruptcy order has ended, you can make a fresh start

Generally, after 12 months you will be discharged from Bankruptcy. When this happens, you will be released from all debts included in 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 creditors

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 Bankruptcy. 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 is your main residential home). You can achieve this by reaching 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 creditors, 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.

Disadvantages of going bankrupt

Your home and assets may be sold

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 creditors. This can include assets 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. Bankruptcy will also stay on your credit file for 6 years, meaning any lenders can see that you have been made Bankrupt.

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.

Some jobs do not let people who have been made bankrupt continue working

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. 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 the people dealing with your bankruptcy think 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.

The only option?

Formal agreements can lock you and your company into inflexible arrangements. They also often disadvantage the debtor (i.e. you). On top of this, options like Bankruptcy can have other repercussions like disqualification from being a director and a negative impact on your credit score.

Overall, they provide less flexibility, leave you worse off financially and mean you have to stick to stricter rules. We always recommend informal agreements as they offer the best possible approach for both you and the lender.

If you would like to explore your options, you can call our specialist team on 0333 305 4331 for a free case review.