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What are the advantages of going Bankrupt?
- This is often the fastest and cheapest way of becoming debt free.
- This is especially the case if you have no assets and live in rented accommodation
- Alternate debt solutions like IVAs & Debt Management plans tend to drag for years
- Bankruptcy removes the pressure of having to negotiate with your creditors
- Bankruptcy removes the problem of having to deal with Bailiffs.
Bankruptcy helps you make a fresh start. The moment the bankruptcy order is made, you will achieve relief from pressing creditors. Depending on your circumstances,you will be automatically discharged from bankruptcy anywhere between 6 and 12 months.
The majority of assets that people believe they will lose in bankruptcy, they can actually keep in most cases. I.e low value cars, cars on HP, their television etc.
Is bankruptcy right for me?
All too often the very people who would benefit most from entering into bankruptcy dismiss the idea out of hand due to a fear of the repercussions. It usually comes down to a simple lack of knowledge of the facts. We strongly suggest reading our ‘Frequently asked Questions’ for more information so you can make your own decision. Listed below are the suitable circumstances for those who might benefit from entering into the protection of a Bankruptcy Order:
- People with no assets (including those with no equity in their property).
- People living in either rented accommodation or with friends and family.
- Those whose employment would not be lost or adversely affected by a Bankruptcy Order (You can easily check your contract of employment).
- People who agree with the moral aspect of bankruptcy.
Personal Bankruptcy Misconceptions
It is a generally held misconception that personal bankruptcy is punitive and that bailiffs will seize your goods and chattels leaving you nothing but a change of clothes. This is false. You enter into the protection of a Bankruptcy Order to do exactly that; to protect yourself from creditors and to make a fresh start. Under Section 283(2) of the Insolvency Act you are allowed to keep the tools of your trade, all clothing, bedding, furniture and even your car (provided it’s not too expensive and subject to certain conditions) the general principle is that your goods and chattels are safe.
With the introduction of the Enterprise Act in 2004, the mandatory period required to serve under Bankruptcy was reduced from three years to one. Bankruptcy is no longer the punitive action of years gone by and is designed to allow people the opportunity of rebuilding their lives. In some cases, bankrupts can be discharged from bankruptcy in as little as four months at the Official Receiver’s discretion. An early discharge is possible provided no creditors object. For those granted an early discharge, the average discharge period is around 7 months.
Your name no longer appears in the local newspaper when you enter into bankruptcy – this stopped in April 2009. However, there are some exceptions / restrictions – for example, your name will still appear if you owned a sole trader business that had complaints made against it in the local community.
To find out more about the common misconceptions in bankruptcy, please read our ‘Frequently asked Questions‘page or speak to one of our advisors.
You can keep the following items of property unless the individual value of each is more than the cost of a reasonable replacement:
- Tools, books, vehicles, and other items of equipment necessary for your personal use in your employment, business or vocation; and clothing, bedding, furniture, household equipment (for example, a cooker) and possessions necessary for satisfying your basic domestic needs of you and your family.
- You will be able to keep most household items, including furniture, televisions and similar items.
- Vehicles up to the value of £2000 are usually safe in bankruptcy provided you can show they are required for work purposes.
- Vehicles on finance are usually allowed in bankruptcy.
- Inland Revenue approved pensions are safe in bankruptcy.
You can apply to the court if you believe that the Official Receiver or Trustee is acting unreasonably when taking or selling goods. Also, if an exempt item is sold, then you may be provided with a reasonable cheaper replacement, if your circumstances require it, by the trustee. For example, if you need a car for your job, a cheaper replacement vehicle may be supplied.
If you have items of value, the trustee may take possession and sell them. They may instruct an agent or auctioneer to value such items. You may dispute the value of the property by obtaining an independent valuation. Bankruptcy has the benefit of writing off all unsecured debt with the exception of court fines and maintenance payments directed by Court Order and student loans.
It’s a good idea to have an experienced company to help with the bankruptcy and prepare the petition for you. Experience is important and often helpful to enable you to steer around problems like income payment agreements, especially if you have chosen to come out of an Individual Voluntary Arrangement (IVA) or Debt Management and enter bankruptcy. Contact an advisor to find out more.
Your Financial Choices
There are choices for anyone who is experiencing difficulties in either their personal financial or trading positions:
- Do Nothing: This is only an option if you are confident that your circumstances are going to change for the better. If you do nothing and you have no exit strategy then you may leave yourself exposed and your situation may well get worse. It is better to be proactive than reactive. It is better to deal with a problem rather than ignore it, as it will only get worse. Only do nothing if you are sure your situation will improve.
- Consider Bankruptcy: Often bankruptcy is the fastest and cheapest way out of debt. Bankruptcy should always be the first debt solution considered as it almost always requires the least repayment to your creditors. If you have no assets to protect, live in rented accommodation or a mortgaged property in negative equity, and are in employment that will not be affected by bankruptcy then this is something you should definitely research further.
- Consider an (IVA) Individual Voluntary Arrangement: IVAs were originally designed to provide relief to debts generated as a result of business insolvency. In recent years, increasing levels of consumer debt has led to many insolvent individuals with non-business debt seeking the legal protection offered within an IVA. IVAs are usually appropriate where you have assets to protect (such as a property with equity) employment make bankruptcy an unsuitable option. It may be that you have special reasons for not wanting to enter into bankruptcy in which case an IVA would be a viable alternative. Please contact us to discuss the options with one of our advisors.
- Consider a Debt Management Programme (DMP): You may like the idea of a debt management company handling your creditors for you. Once your circumstances are known an affordable monthly payment will be agreed and the debt management company will write to all of your creditors and request that interest be frozen. The Debt Management company will distribute a proportionate amount to each of your creditors. You have access by telephone to your debt management company and do not have to wait to see someone. All this can be arranged in one phone call. This relieves you from having to contact your creditors directly as the DM company liaises with your creditors through the debt management plan. Debt management is quickly becoming popular for property / home owners as there are no restrictions against your property, unlike IVA’s.
