What's Bankruptcy
Bankruptcy is a legal Court Order which can see you getting your debt written off if you are seriously struggling to pay these back. Whilst it is a solution to becoming debt free, it should really be considered as a last resort. Bankruptcy itself is a year long process, but the long-term impact this has will last around 6 years.
It is a solution which you can apply for yourself directly via the Government website, or alternatively creditors or 3rd Parties that you owe money too may also request you be made Bankrupt too. This is called a ‘Bankruptcy Petition’ where your creditors may begin legal proceedings against you if you owe them over £5,000 and you continue to not make repayments.
Advantages and Disadvantages of Bankruptcy
There are many things to bear in mind when considering debt solutions. We’ve outlined some points that are important know with Bankruptcy:
Advantages
- It is a way of getting your debts written off.
Your creditors will no longer be allowed to continue contacting you directly. - The Bankruptcy itself lasts one year, after which you will be debt free.
- You may be able to keep your house if there’s no equity in it, as well as your car if it is worth less than £1,000.
- You’ll still be allowed a reasonable amount of money to live off.
Disadvantages
- You are likely to lose your home if there is available equity in it, along with any other valuable assets.
- There is still a £680 fee to pay to apply for Bankruptcy and your application will not be considered until this is paid.
- You could be at risk of losing your job and may struggle to get work in the future.
- Your details will be published on the public insolvency register.
- Your credit rating will be negatively affected for 6 years following the Bankruptcy.
What Will Bankruptcy Cost Me?
Like some other debt solutions, there are fees involved when opting for bankruptcy.
The total cost is £680 which covers two aspects:
- £130 – adjudicator fee
- £550 deposit (if your application is rejected, you get this money back)
This fee must be paid in full before your application can be considered, but you do have the choice to pay in installments if needed.
You will not be required to make any further payments towards the debts involved in your bankruptcy, however, you must keep up repayments that aren’t included to avoid further issues.
Bankruptcy Vs. Other Solutions
Bankruptcy Vs. IVA
Both of these solutions may enable you to write off large sums of debt, however, important things to consider are:
- An IVA still involves you paying an affordable amount towards a proportion of your debts for 5 years, whereas Bankruptcy does not require you to make further payments.
- Your home and assets are protected with an IVA, whereas these may be sold if you opt for Bankruptcy.
- Here’s some further information if you are choosing between an IVA or Bankruptcy
Bankruptcy Vs. Debt Management Plan
These are many differences between these two solutions, and the main ones are:
- Bankruptcy is an official Court Order, whereas a DMP is an informal agreement.
- Most debts are covered by Bankruptcy, whereas only non-priority debts are included in a DMP.
- Bankruptcy is an option when you have very little capability of paying off your debts, whereas a DMP requires you to make monthly contributions.
- Here’s some further information to consider if you are looking at Bankruptcy or a Debt Management Plan.
Bankruptcy Vs. Debt Relief Order
These are two very similar solutions but they do serve different purposes. The main differences are:
- A Debt Relief Order is designed for non-homeowners who have very little assets.
- The fees for Bankruptcy are higher (£680) whereas a DRO costs £90.
- There is no cap for the debt level of those applying for Bankruptcy, but you are only eligible for a DRO if you have less than £30,000 worth.
Is Bankruptcy Right For Me?
If you are looking for the best debt solutions, it is crucial that you consider all options before making a decision. We’d advise you to research all possible solutions, as well as seek debt advice from specialists to make sure that you are making the right decision for you.
Whilst Bankruptcy seems like a quick fix to getting rid of your debts, it does come with its downsides and you must know the risks beforehand.
However, Bankruptcy may be suitable if your debts are greater than £30,000 and you really have no spare income to go towards your debts via other solutions (IVA / DMPs).