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Bankruptcy

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Bankruptcy may be a consideration if you’re struggling to pay your debts. Although often seen as a last resort, declaring yourself bankrupt can take away some of the stress of debt repayments and may offer the most practical solution. However, it doesn’t happen overnight and there will be implications on your home and assets. Anyone who owes more than £750 can declare themselves bankrupt; this basically means legally declaring that you can’t pay what you owe. You can also be forced into bankruptcy by one of your creditors if they petition for it.

For some people, bankruptcy offers a way out where they see no other alternative. Once you have been declared officially bankrupt, you don’t have to deal with the people you owe money to. An Official Receiver takes over this responsibility, as well as taking control of your money and property. Here’s a look at some of the other advantages and disadvantages of bankruptcy.

Advantages of declaring bankruptcy

  • The pressure of dealing with creditors is taken away from you.
  • Creditors have to stop most types of court action to get their money back once an order is in place, although bailiffs can still seize your belongings in some cases.
  • You are allowed to keep certain things, such as household goods and a reasonable amount to live on.
  • Some of the money you owe can usually be written off.
  • Once the order is over you can make a fresh start and in many cases this can be done in as little as 12 months.

 Disadvantages of declaring bankruptcy

  • It can cost you £700 or more to apply for bankruptcy.
  • You can’t apply for more credit while you are bankrupt.
  • Your home and/or some of your possessions may have to be sold. It’s likely that you will lose luxury items that you own.
  • In some professions, people who have been made bankrupt are not able to carry on working.
  • It is more than likely that the Official Receiver will close your business, dismiss your employees and sell any assets.
  • Bankruptcy isn’t private. Your details will be put on the Insolvency Register which is accessible via the internet.
  • You could have a bankruptcy restriction order made against you – even after the bankruptcy – if you don’t co-operate with the Official Receiver, or you took on debts knowing that you had no hope of paying them back. These can last for 15 years and will restrict your financial affairs.
  • Some debts, such as court fines and students loans, are never written off.
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In any case, you will need expert advice before declaring bankruptcy. Organisations such as Citizens Advice can provide a range of help and information as the process can be tricky. If you decide to go bankrupt you will have to apply to court but it’s worth making sure you have enough cash for day to day living expenses because as soon as the order is made your accounts will be frozen.

How to apply

You’ll need to apply to your local county court and will have to pay a deposit of around £525, plus a possible fee of around £175. However courts can reduce or waive the fee depending on your circumstances. If you can’t afford the deposit then a debt relief order may be a better course of action. You’ll also have to fill in a bankruptcy petition and a statement of affairs which can be downloaded from the Insolvency Service website. These require you to list all your creditors, provide bank and building society account details and list other assets with a resale value. You will also have to swear an affidavit to the court confirming that you have been truthful in the forms. False statements or failing to declare all your property will be seen as a criminal offence and you could be fined or imprisoned. Getting rid of property before you go bankrupt is also an offence.

During the process

At the bankruptcy hearing a court can decide whether to accept or reject your application. They may reject it if they think there is a better solution to your problem. Once an order is made, your accounts will be frozen and the Official Receiver will check what items you have that can be sold to pay creditors. The receiver will write to your creditors and sell your assets to pay off some or all of your debts, including the costs of bankruptcy and the receiver’s fees.

Bankruptcy usually ends after a year, or less if you have co-operated fully. Most unpaid debts will be written off but you will have to make arrangements to sort out any that can’t be written off. You will remain on the Insolvency Register for a further three months after the bankruptcy order ends and it will stay on your credit reference file for another six years, so could affect your credit rating for some time after.

 

 

 

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