With a number of debt solutions available, bankruptcy is only normally recommended in the most serious cases. This is because, unlike an Individual Voluntary Arrangement (IVA), you have to close down your bank account and could lose possessions like your home.
Although bankruptcy is sometimes a lifeline to people with substantial debts, always speak to a professional about the alternatives first, especially if you own a property. Remember too that some debts, such as a student loan, court fines and child maintenance, cannot be included.
Should I declare myself bankrupt?
You apply for bankruptcy via the government’s website and if approved, anything you own could be used to pay off the debt. Your name will appear on the Individual Insolvency Register, you’ll receive a copy of the order and be expected to follow a number of restrictions. The current fee for bankruptcy is £680, and must be paid in full beforehand, though you can do so in installments.
Some people are forced into bankruptcy by their creditors, who can take out an order if they owe more than £5,000, don’t pay their debts, have broken the terms of an IVA and/or have submitted false information during the IVA application.
When you enter into bankruptcy, an official receiver takes control of all your possessions and decides what can be sold to pay off your debts. Normally you can hold onto the basics, like clothes and household goods, as well as your car if you need it for work. Someone who is bankrupt can continue to work, as long as they are not a company director.
Do I have to go to court?
You’ll have to submit information about what you earn and your bills, as well as how much you owe. In the past, you would have had to attend court – but now an official receiver will handle your case, getting the information they need during a telephone interview.
However, your creditors could still take you to court to get back what they are owed. This is known as a ‘bankruptcy petition’ and is only suitable for debts of more than £5,000. Going to court feels daunting, and may force you to become bankrupt against your wishes, so find out whether the creditor is willing to accept a repayment plan or mediation. Always seek legal advice from a solicitor, who can guide you through the process and, if necessary, dispute the claim and represent you in court.
When will I be debt-free?
For those who have been living with serious debts for years, bankruptcy can be a huge relief because most are discharged after 12 months, as long as they co-operate with the terms.
During bankruptcy, you’ll have to close your current account down – but don’t worry, you’ll still be able to receive your wages and any other payments. Many of the high street banks offer a basic account, which includes essential services such as online banking and a debit card but no unarranged overdrafts.
What should I do next?
Whether you are considering bankruptcy, or want to find out about the other repayment plans available, it is important to speak to an impartial debt adviser, who can discuss your options.