Bankruptcy
Bankruptcy is seen as the last resort. It is perceived to be the only way to escape the ever constant demands for payment by debt collectors and credit companies. Certainly there are times when bankruptcy can be very useful, but there are other times when it would be a monumental mistake.
The constraints which are put upon a person once they are declared bankrupt make it only a viable option in the most extreme cases. It is more likely that an IVA would be a more suitable option for someone with severe debt problems.
Once a person has been made bankrupt, they don?t have to deal with the company/person that they owe money to. An official called the Official Receiver takes control of the person?s money and property, and deals with their creditors.
Bankruptcy is a court order that anyone can apply for if they are in debt.
So who can become bankrupt?
- You can petition for your own bankruptcy
- Creditors can alone or jointly apply for you to be made bankrupt
- A supervisor of an IVA can apply for bankruptcy proceedings against you where you have defaulted in the IVA
Some of the advantages of going Bankrupt are:
- Pressure is taken off you because you don't have to deal with your creditors
- Certain items can be kept, like household goods and a reasonable amount to live on
- When the bankruptcy order is over, you can make a fresh start. In many cases, this can be after only one year
- Creditors have to stop most types of court action to get their money back following a bankruptcy order (but in some cases the bailiffs may still be able to take your belongings away)
- The money you owe can usually be written off.
Some of the disadvantages of going Bankrupt are:
- It will cost you money (up to ?475) to go bankrupt
- Whilst you are bankrupt, you can't apply for more credit
- If you own your own home, it might have to be sold
- Some of your possessions might have to be sold, for example, you will usually lose the car and any luxury items that are owned
- Some professions don't let people who have been made bankrupt carry on working
- If you own a business, it is more than likely that the Official Receiver will close down the business, dismiss you employees and sell off the assets.
- Going bankrupt can affect a person?s immigration status
- An individual cannot keep their bankruptcy private. A list of bankrupt people is published on the internet and also published in your local newspaper
- Even when you are no longer bankrupt, you could have another order, called a bankruptcy restriction order made against you. These orders can be made, for example, where a person did not co-operate with the Official Receiver, or they took on debts knowing that they had no hope of paying them back. They can last for 15 years, and will make you financial affairs very restricted.
- Even when you are no longer bankrupt, there are some debt such as court fines and student loans that will never be written off.
How a person goes Bankrupt
If you decide to go bankrupt, you will need to apply to court.
This will usually be the county court in the area where you have lived for the last six months. In London, it is the High Court.
You will then have to fill in the relevant forms and submit these to the court along with your payment.
Once the forms are submitted and you have sworn your forms, i.e. you have declared to the court that the information given is correct and that you have declared everything, the court may either fix a time for the hearing, or hear your case straight away. If your case is in the county court, you will have to attend the hearing.
At the bankruptcy hearing, the court will decide either to reject the application, or to make a bankruptcy order. The court will reject the application if, for example, they think there is a better solution to your debt problem.
What happens once the bankruptcy is agreed?
Once the bankruptcy order is made, your bank and building society accounts will usually be frozen immediately. Your money will come under the control of the Official Receiver.
The Official Receiver arranges an interview with the individual. After your interview, the Official Receiver will tell your creditors about the bankruptcy, and send them a report with a summary of your financial situation.
Your assets will be sold to pay off some or all of the debts. The costs of the bankruptcy are paid first from the money that is available. The costs include fees that the Official Receiver charges for dealing with the case.
When does bankruptcy end?
Bankruptcy will normally end after one year but will remain on a person?s credit file for six years. It could be less than a year if you have co-operated fully with the Official Receiver. The Official Receiver will tell you when the bankruptcy is over. Most debts that haven't been paid will be written off.
Creditor
Someone you owe money to.
Unsecured lending
Total loan & credit card debts excluding your mortgage and any hire purchase.
Country
The country you currently live in.
Insolvency Practitioners
Also known as an IP, a person who specialises in formal insolvency cases.
Valuations
The process of determing the current value of an asset.
Equity
The difference between the market value of a property and the claims held against it.
Lender
Someone you owe money to.
Eviction Order
A court order by which a person may be evicted.
Arrears
An unpaid and overdue debt.
Disposable Income
The amount of income left to an individual after taxes have been paid, available for spending and saving.
Statement of Affairs
A financial report showing assets and liabilities at expected liquidation values and shareholders' equity.
Insolvent
Unable to meet debt obligations.
Secured Loan
Money borrowed using goods or property as a guarantee.