Bankruptcy, a type of personal insolvency, can be one way to free you from debt, but is it the right option for you? Here, we take a closer look at whether personal insolvency is the right way forward, and what things you should consider.
What is bankruptcy?
Bankruptcy is a legal process that entitles those who cannot repay debts to seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, usually initiated by the person in debt. Bankruptcy is one of the forms of personal insolvency, others include individual voluntary arrangements (IVAs), debt relief orders and debt management plans.
Why would a bankruptcy order be made?
- If you cannot pay what you owe and want to declare yourself bankrupt
- Your creditors apply to make you bankrupt (if you owe £5,000 or more) and;
- An insolvency practitioner makes you bankrupt because you’ve broken the terms of your IVA.
What happens when you are made bankrupt?
Numerous things happen when you are made bankrupt, such as:
- Most debts are written off
- Assets are relinquished and disposed of by the bankruptcy trustee
- Bank and building society accounts are frozen and controlled by the trustee.
- It is likely you’ll find it difficult to get credit during the bankruptcy period and;
- Your credit rating is likely to be affected up to six years after the bankruptcy order is made.
What are the advantages of bankruptcy?
- If you’re missing debt payments, accruing defaults and have pending lawsuits, your credit rating will already be affected. Although bankruptcy does affect your credit rating for up to six years, it does allow you to wipe the slate clean and start again.
- Your creditors cannot take any more legal action against you
- They must also stop demanding payment, stop charging interest and cease to charge anything further.
What are the disadvantages of bankruptcy?
While it might seem like bankruptcy is the best option for you, there are some disadvantages to be aware of.
- Assets such as your car or home may be included in the bankruptcy
- If you work in the legal or financial industries, your role could be affected
- Bankruptcy will be recorded on a public register, and;
- It will stay on your credit file for up to six years from the point at which you became bankrupt.
Is bankruptcy my only personal insolvency option?
If you’re facing financial difficulties, there are numerous forms of personal insolvency support, such as debt relief orders and IVAs, to name a few. Rather than facing debt alone, get in touch with someone who can help walk you through the right steps to manage your finances and future. At BEACON Licensed Insolvency Practitioners, we can help you regain control and face your challenges head on. Please contact us on 02380 651441 to find out more.