All about Bankruptcy
Bankruptcy is probably the most commonly known debt solution, the most misunderstood, and the most complex. We won’t try and explain every line and verse of the debt solution here, just to give you an overview of the things you should know.
One of the most important things to understand is that for your unique circumstances, bankruptcy, despite being quite a scary word, could be the best option for you. Conversely, for those who have only ever heard of bankruptcy, there might be a better solution for you. In short, when it comes to choosing a debt solution, try to keep an open mind.
What is Bankruptcy?
Just like IVAs and Debt Relief Orders, bankruptcy is an insolvency debt solution. Once accepted, after 12 months, providing you stick to the terms, your debts will be written off. Depending on your circumstances, there could be monthly payments for three years. There will also be a person called an Official Receiver assigned to oversee the bankruptcy. This is just someone to make sure you are complying with the terms of the bankruptcy. To apply for the bankruptcy there is a fee of £680. This can be paid in instalments by setting up an account on the Insolvency Service website.
Is Bankruptcy right for you?
With a bit of research, so many times you’ll see people telling you that bankruptcy should be a last resort. This is not true. In certain circumstances bankruptcy is by far the best option to get debt free. Most commonly, Bankruptcy suits people who have an income solely made up of benefits. That’s because when it comes to taking your income and outgoings, your income is classed as £0.00. This means you’ll have no payments to your lenders and in 12 months your debts will be written off.
The more pertinent question for this section might be: when is Bankruptcy a bad idea. This isn’t a straight forward question either; however, there are certain circumstances that usually make Bankruptcy a bad idea. If you are a homeowner, it’s almost always a bad idea. That’s because you will likely be forced to sell your home to release the equity. If it means you will lose your job, again it’s a bad idea. For those who have a good income but are in difficulties because of they have overspent in some areas, again Bankruptcy likely isn’t for them. That’s because there are tight expenditure restrictions when it comes to Bankruptcy.
If you’ve read other content on this website, you’ll know we always advise to you discuss your situation with a debt advisor before making any decision. If you’re considering bankruptcy then it’s doubly important. Bankruptcy should not be taken lightly.
How will Bankruptcy impact you?
- Bankruptcy impacts your credit rating for six years
- You will be placed on the public insolvency register –this isn’t scary as it sounds, after all have you ever looked at the insolvency register. Some of us have worked in this industry for years and haven’t ever bothered to look at it.
- You might have to sell your assets such as a home or car
- You will not be able to have certain jobs
- You can’t buy a house on the right to buy scheme
- You cannot be the Director of a company
How to apply for Bankruptcy
Before you apply for Bankruptcy you need to seek professional debt advice. Once you’ve done this and you want to start the process, the company you have dealt with should guide you through the process. The process will look something a little like this:
Step 1 – You should pay for you application via https://www.gov.uk/. The application costs £680 and can be paid in instalments. You can see if you are entitled to support with the website costs on the website https://www.turn2us.org.uk/.
Step 2 – Once your application has been received an adjudicator will assess your application. They are checking amongst other things to see if you have money to repay your debts.
Step 3 – You'll be assigned an Official Receiver who take control of your assets and oversee the Bankruptcy. After twelve months, providing everything runs smoothly, you will be discharged.
After your bankruptcy
Within 12 months from the date you started your bankruptcy, you should be discharged. This will only happen if you’ve met all your legal obligations – so if you’ve paid everything in or sold any assets that you need to.
You can, however, be subject to an Income Payment Agreement (IPA) or Income Payments Order (IPO) for up to three years. With an IPA/IPO, you’ll have to make monthly payments towards your debts. You’ll only have to do this if you can afford to, after your essential bills have been paid.
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