Bankruptcy may be the right solution for you if you have major debt problems. Declaring bankruptcy in the UK will allow you to waive or write off the debts that have become unmanageable for you.
Like all other debt relief solutions in the UK, bankruptcy has its own risks and benefits. Initiating the legal process of declaring bankruptcy may be like a fresh start for some. For others, it could have serious social and financial implications.
Before you make any decision, it is crucial to develop an understanding of what is bankruptcy and how it works.
What is Bankruptcy?
Bankruptcy is a type of insolvency that helps you deal with debts you cannot afford to pay off within a reasonable time period. It is a legal process through which you can write off the debts you have been unable to pay, and may involve selling off certain assets (your belongings and property).
Bankruptcy is the most stigmatised act of insolvency but that does not rule it out as a viable debt relief option.
In fact, declaring bankruptcy may even be the most suitable solution for you if you own minimal assets, have defaulted on your debt and are unable to pay your creditors back.
An average bankruptcy in the UK lasts 1 year but it can last longer or less, depending on your case and circumstances.
You can only declare bankruptcy if you are living in England or Wales. Those residing in Scotland can apply for sequestration, which is the Scottish equivalent of bankruptcy.
Advantages of Declaring Bankruptcy in the UK
Depending on your financial situation and amount of debt, declaring bankruptcy can be a blessing for you. Here are some of the advantages of going bankrupt:
Going bankrupt will reduce your debt load since all the unsecured loans you have defaulted on can usually be written off.
Protection Against Legal Action
Once you secure a bankruptcy order, your insolvency is formally acknowledged. This offers a measure of protection against creditors since they can no longer take any legal action against you to recover the money you owe.
No Additional Charges
Declaring bankruptcy will also stop any additional fees and penalties. This means that your creditors cannot apply further charges and interest payments on you.
After you declare bankruptcy, you will not have to maintain contact with your creditors, and you will stop hearing from them.
Disadvantages of Declaring Bankruptcy in the UK
The decision to declare bankruptcy should be well-thought out because it can have serious implications on your life. Here are some of the risks associated with going bankrupt:
Assets such as your home or car might have to be liquidated and sold off in order to pay your creditors.
Declaring bankruptcy in the UK may have job-related implications too, especially if you are employed in the legal or financial professions. Some employers do not allow bankrupt individuals to continue working for them.
Impacts Credit File
Having bankruptcy on your credit file will negatively affect it. Your bankrupt status would show on the credit file for a period of 6 years.
Bankruptcy status becomes a matter of public record. Your bankruptcy will be published in a public bankruptcy register.
Is Bankruptcy the Right Option for You?
It is important to remember that bankruptcy is insolvency so, in debt-related matters, it is considered the last resort in most situations.
Bankruptcy should be considered only when you are unable to repay your debts within a reasonable time and you have minimal personal assets.
Declaring bankruptcy may not be the best course of action for you if you can afford to repay your debt in the form of periodic installations or if the total worth of your assets is more than your total debt.
It may also be worthwhile to look at alternatives to bankruptcy before deciding on the perfect debt solution. IVA and Debt Relief Order are two options that may suit you better than bankruptcy.
How to Apply for Bankruptcy
You can apply for bankruptcy online by visiting the official UK Government website (https://www.gov.uk/apply-for-bankruptcy) and filling out a form provided there. The application fee is £680. The following steps may be helpful if you are planning on applying:
Step 1: Collect all your financial details and organise them in a file. The required documents will include payslips, your outgoing budget and your debts.
Step 2: Educate yourself on the process of declaring bankruptcy.
Step 3: Get help from an expert. Our experienced financial experts can help you determine whether bankruptcy is the right solution for you.
Get Bankruptcy Help from Debt Experts
Money Advisor is committed to providing the best possible service to all those who need help with their finances. If you are struggling to make ends meet or perhaps have experienced a change in circumstances that have affected your ability to manage your finances, please contact us as soon as possible, we will complete a thorough, impartial examination of your individual situation and put you on the road to financial recovery.