The Pros and Cons of Bankruptcy

The decision to declare bankruptcy is a very important one that requires careful consideration. It can affect your borrowing and credit for the future and can leave you penniless.

For many people who find themselves drowning in debt with no means to repay the money they owe, it is a possible solution.

Many people have the idea that when you declare bankruptcy, you have been negligent in repaying your bills, but this is not always the case. Job loss, illness, divorce or the loss of income due to the death or a spouse are also reasons that cause people to resort to bankruptcy.

In the UK, declaring personal bankruptcy means that you will form a sort of moratorium of your creditors who will agree to accept part of the money you owe.

In order to meet this payment scheme, you will have to sell off all your property. Once you do make the required payments, you do have a clean slate. This is perhaps the only good thing about the bankruptcy process.

In order to apply for bankruptcy in the UK, you have to do so in person in court. However a creditor who has repeatedly contacted you for repayment can also request that you be placed in bankruptcy if you owe at least £750 to this person.

This can be done even if you refuse to acknowledge the debt, but it is important that you do cooperate with the courts once the proceedings have started. If you dispute the debt, then it is essential that you try to straighten things out with the creditor before it reaches the stage of going to court.

There are fees associated with declaring bankruptcy. These are:

• £120 court fee
• £250 towards the cost of administering the bankruptcy, and
• £7 fee for the swearing of affairs in the High Court or before a lawyer. If you do this in County Court, there is no fee involved.

You will have to present an official listing of all your assets, which includes property, pensions, income amounts, savings, and any insurance policies that you hold.

You must also present a list of all your debts and the names of the creditors. These documents must be presented within 21 days of the receipt of the bankruptcy order.

All the assets are then passed over to the Official Receiver. Any monies that you earn or receive during the bankruptcy also have to be declared. If you have to borrow the money needed to pay the fees, you do have to make sure that the lender understands you need this because you are declaring bankruptcy.

Essentially, you are left with nothing when you make the declaration. You will not be allowed to use any of your bank accounts or any buildings that you own, including your home.

Some of the results of declaring bankruptcy include the stigma of having to identify yourself as having done so. You will not be permitted to borrow more than £250 either alone or jointly unless you disclose your bankruptcy to the lender.

If you declared bankruptcy as a business, you will no longer be permitted to operate the business under that name. You will not be allowed to start another company or business unless you obtain permission from the Court and you will be barred from holding any public office.

The bankruptcy will remain on your credit record for a minimum of six years, thus affecting your ability to obtain a loan or at least a loan with low interest rates. Even after this six-year period, you will still have to disclose the fact you went bankrupt if you apply for a mortgage.

It takes about a year to discharge a bankruptcy, which means to declare you free of any obligations to your creditors once you dispose of your assets and use the money to repay the agreed upon amounts to each creditor.

This discharge does not occur automatically and can be postponed by the court.

The Trustee could hold the equity in your home, for example, for three years. You may be called to Court to explain the reason for your debts and if the reason is negligence on your part, you may receive harsher penalties.

Those who declare bankruptcy twice within a fifteen-year period will only have the order discharged after five years and even this requires applying to the Court.

If you declare bankruptcy in the UK, you can expect to see your name published in the newspaper so it is not something that you can keep secret.

If you own a business, your business will be closed and your employees will lose their jobs. If you rent, your landlord will be notified of the order immediately and you will lose all your credit cards.

Therefore, if you find yourself in debt, the best thing to do is to consider other ways of coming up with a solution.