Declare Bankruptcy

“Declare bankruptcy and all your debt worries will be over.”

“Declare bankruptcy and you will lose your home, you might be put in prison and all of your possessions will be sold to pay your debt.”

Two extreme points of view often held on either the benefits or the perils of declaring bankruptcy. As ever in life the truth is somewhere between these two extremes.

So What is Declaring Bankruptcy?

Bankruptcy it a legal status that means that you are unable to pay your unsecured debt. It does not directly effect secured debt. The procedure and implications are exactly the same whether you have been declared bankrupt by a creditor or you have declared yourself bankrupt. When you enter bankruptcy all of your unsecured debts are wiped out (except for certain specific debts like student loans).

What Happens When You Become Bankrupt

You will enter a period when your financial affairs are not under your control. As you have failed to pay back your debts your finances will be managed to try and produce some money to pay your creditors back. You will not be able to obtain new credit until your bankruptcy has been discharged, usually in less than a year. Any major assets that you have will be sold to try and raise money to pay back your creditors. Your bank accounts will be frozen and you will have to open a new basic bank account (one that has no overdraft facility). You will have to attend an interview with the Insolvency service to go over your financial affairs and the reasons for your bankruptcy.

What Happens to my House?

If you own your house then your share of it will need to be sold to help pay off your creditors. If your partner or a family member is able to buy your share of the house at market value then this will remove it from the danger of being sold. If you cannot do this and you share your house with your partner/family then you will have at least a year before the house has to be sold.

Will My Other Possessions be Sold?

Only valuable possessions are at risk of being sold, e.g. cars, boats, antiques etc. The insolvency service are typically not interested in everyday household items. They cannot seize items that are either jointly owned or required for basic living. Even your car might be safe if you can prove that it is required for your work.

Will I Have to Pay Some of My Earnings?

In theory if you earn enough then you can be made to pay an amount each month for 3 years. In most cases this will not be the case. Remember when filling in the forms that your partners income should not be included in the equation, i.e. if you have rent, food, utility bills it is perfectly acceptable for you to say that you pay all of them. This fact alone means that most people do not have any additional income to be paid into their bankruptcy.

How Long Will my Bankruptcy Last?

Rules have been relaxed so that the maximum period for most personal bankruptcies is a year. Many will be discharged in six months or even less. After this time you are free to conduct your life as you please, although you will experience trouble getting credit for a number of years since the bankruptcy will stay on your credit file.

Tags: Bankruptcy, Debt Advice, debt assistance, Debt Problems, Debt Solutions