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Bankruptcy

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Bankruptcy

Bankruptcy is perhaps the most well known debt solution in the UK. 

There are many myths and misunderstandings around Bankruptcy but in certain circumstances, it can be a great option for people to regain control of finances and find a lasting solution to their debts. 

Bankruptcy could see you debt free in just 12 months but there are quite a few downsides to consider. 

Bankruptcy can have both positive and negative impacts on your life for quite some time so it it important to get the facts before making your decision. 

  • Typically lasts 12 monthsYou could be debt free a year from now
  • Write off debtAll of the debt included is written off
  • Protection from creditorsThey can no longer chase you for payment

How does a Bankruptcy work?

Bankruptcy is a legal agreement and is rather complicated. In a nut shell, Bankruptcy was designed by Government, to allow people struggling with debt to find a lasting and effective solution to their debts.
Write off all of your debt
Any debt included in the Bankruptcy is written off once it is completed, typically 12 months.
Protection from creditors
Once Bankruptcy is in place, your creditors can not contact you, chase you for payment or even call you or send you letters.
A fresh start
The whole point of Bankruptcy is that you can put your debts behind you and start afresh with your finances.
Typically lasts 12 months
Bankruptcy usually lasts for just 12 months. Once it is over, most of the restrictions are removed and you can get on with life.
No interest
Once the Bankruptcy is in place, all of your creditors included in the bankruptcy have to stop charging interest.
You're allowed to keep certain things
The myth is that in Bankruptcy, everything is taken from you. Generally speaking this isn't true and most household items remain yours.

Example of Bankruptcy:

Bankruptcy is different for everyone and needs careful consideration but below you can find an example of how Bankruptcy could work for you.

Before Bankruptcy:

Total debt to repay: £25,000
100%
Monthly Repayments: £368
100%
Time in debt: 12.3 years
100%
Debt written off: £0
1%

After Bankruptcy:

Total debt to repay: £0
1%
Monthly Repayments: £0
1%
Time in debt: 12 months
1%
Debt written off: £25,000
100%

The downsides of Bankruptcy

As with all debt solutions, there are downsides that require careful consideration. With Bankruptcy there are significant downsides, perhaps more than any other debt solution.
You could lose your home
In Bankruptcy you may be forced to sell your home if you own it or part own it with another person.
Negative impact on your credit rating
Whilst in Bankruptcy, you can not get more than £500 credit. Bankruptcy will stay on your credit file for 5 years and make it difficult to get credit in the future
Not all Debts are Included
Certain debts cannot be included in Bankruptcy. Examples of this may be student loans or court fines.
May be asked to pay monthly
Bankruptcy administrators called Official Receivers may ask you to make a monthly payment for up to three years.
Bankruptcy is public
Bankruptcy is a legal and public arrangement. Your details will be placed on a public register and can be published in the local paper and London Gazette
Your finances will be investigated
Once you are declared Bankrupt, you must have a meeting with the Official Receiver who will review your finances in detail to decide the terms of your Bankruptcy.
There is an application fee
To apply for Bankruptcy you will need to pay a fee of £680. There may be a reduction available in certain circumstances.
Can affect employment
Certain professions will not allow Bankruptcy. You must check your employment contract to see if Bankruptcy will affect your employment.
Can be difficult to rent
Bankruptcy can impact on your ability to rent properties both whilst Bankrupt and for some time afterwards.
Still has stigma attached
Unfortunately, for many people, there is still a stigma attached to bankruptcy. In most cases this is a result of misunderstanding and lack of information.
Going Bankrupt can affect your immigration
Bankruptcy can affect immigration status. If you are applying for citizenship or going through an immigration process, you must check for impacts.
Causes problems for self employed
Once declared bankrupt you may no longer be the director of a company. As a Sole Trader it is likely that you will be unable to get trade credit.
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