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Bankruptcy Explained

Bankruptcy in 4 simple steps

1

Recognising you need help with debt is the first step

2

Take the debt test or contact us to find your best solution

3

Speak to a debt specialist about your options for free

4

Start it! Begin your path to debt freedom with a little help

Despite negative connotations, this is often the best option available to free people of unmanageable and overwhelming debt. It involves a formal procedure and is a last option when debts cannot be repaid.

An individual can petition for his or her’s own bankruptcy, or it may be put forward by a creditor. Once a bankruptcy order is made, it’s necessary for the debtor to provide full details of their financial records to the Official Receiver who will assess their ability to make contributions to their creditors from either assets or income.

With bankruptcy, you could:

  • Have unaffordable unsecured debts written off
  • Be debt-free in 12 months
  • Make room for your other living costs
  • Have no more hassle from your creditors
  • Start afresh after the bankruptcy order
  • Create the chance to rebuild your credit rating

An end to your worries about debt

Bankruptcy writes off the unsecured debts you can't afford. It's over more quickly than some debt solutions too - you'll normally be discharged after one year.

Protection against lender demands

Once your bankruptcy has been agreed, your lenders can't take any further action against you.

Makes sure you can afford your other living costs

During bankruptcy, your bills and other costs will be treated as priority. Any payments you make towards your debts will fit around your living costs, to make sure they're covered.

What is bankruptcy?

Bankruptcy is a legally binding process that writes off money owed to your creditors. It used to last on an individual's record for several years, but this is now significantly shorter, and there is less of a stigma attached nowadays. Bankruptcy is aimed at those who are in serious trouble repaying their debt, for many different reasons, including bad investments, a change in job, an accident or disability, resulting in a change of circumstances, and so on.

To qualify for bankruptcy, you must be insolvent, which effectively means you owe more than the total value of all your assets and savings. Or to put it another way, insolvency occurs when total liabilities exceed total assets (negative net worth).

Bankruptcy isn't right for everyone, and we do offer alternative solutions to bankruptcy. To be sure bankruptcy is right for you, simply enquire now, and we will call you back for a brief initial chat.

There are two ways in which you can go bankrupt. The bankruptcy process can be 'voluntary' - i.e. implemented by you, or 'involuntary' - requested by an individual or organisation that is owed more than £750.

The Implications

If insolvent, your debts are at a level that it is not possible for you to repay them. Whatever debt management option you then use, you will almost certainly be expected to make a contribution towards paying off some of those debts over the subsequent years. Your creditors will have to come to an agreement over what percentage of your debts that would be. By accepting that you need help, you pass over control of your assets and financial affairs to a trustee or someone of a similar ilk, to oversee dealings regarding your financial situation.
All paths will mean restrictions on your lifestyle, and your financial freedom, but they are necessary steps towards a much brighter future. Additional credit will be heavily restricted during the repayment process, and your credit report will be marked and penalised for six years.
There may also be restrictions in terms of employment (see our section on bankruptcy and employment) as some professions do not allow people who have been made bankrupt to continue in employment and you will usually be banned from operating as a company director for a number of years.

That is not to imply that bankruptcy or one of the debt management alternatives is all negative – far from it. There is a clear positive aspect to proceeding with bankruptcy as it is dealing with a stressful situation head-on and taking decisive action towards attaining a brighter and debt-free future.
Despite the longer-term effect on your credit rating, you are actually “discharged” from bankruptcy after just a year. Any payment schedule will only be agreed if it is affordable to you and allows you to proceed with your life at an acceptable standard. What’s more, your creditors can no longer chase you for monies owed, so there is often a huge release of stress when going down such a route. Your creditors can only deal with the trustee or practitioner in charge of your case, and as long as you abide by the terms of the bankruptcy agreement, you will be free of debt at the end of the process and in a position to make a fresh start – and you can’t really put a price on that.
As always, seek professional debt advice when considering how to deal with financial difficulties.

The Process

Once you have spoken to us, and we have accepted the case, we will commence work on creating a fully comprehensive statement of affairs. This will involve details of your financial situation - that is, a list of who and how much money you owe to, and your income and expenditure. It will also detail all of your assets, as certain items may need to be included in the petition, to pay off some of your debt.

When the process is underway, a receiver (alternatively known as a “Trustee in Bankruptcy”) will analyse and where appropriate, sell your assets that are deemed non-essential. They will then distribute the proceeds so that as much of your debt can be recouped by your creditors.

Whilst the overall goal of bankruptcy is to ensure that you are debt free as soon as possible, the process has to also be fair to your creditors. Therefore, as much of the outstanding debt must be repaid in the quickest time also.

During the proceedings, the bankruptcy court has the option of delaying the proceedings (mainly to obtain further information), dismissing the application (mainly if an alternative solution is preferred), appoint an Insolvency Practitioner (to recommend an IVA - please see our alternative solutions to bankruptcy), or grant the bankruptcy order. If the order is granted, you are officially declared bankrupt at that point.

If this is the case, you then no longer have to make payments to your creditors. The length of time declared as bankrupt varies from case to case, but can be as little as a year at the moment.

  • Run through a quick phone call with us and discuss your debts and income/ expenditure
  • We will prepare a statement of affairs for you, based on your information
  • We complete the bankruptcy petition forms for you
  • You make payment for the core bankruptcy fee
  • We book in a hearing date at your local court
  • You attend the bankruptcy hearing at court
  • In some cases, following the hearing, you may be required to take a phone call from the official receiver to clarify some points
  • Once granted, you no longer make repayments to your creditors

Bankruptcy isn't for everyone

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Free debt counselling and advice is also available from the Money Advice Service available at: www.moneyadviceservice.org.uk

TheBankruptcyService.co.uk doesn't charge a fee for its bankruptcy service, but receives remuneration from the partners that we work with in order to keep TheBankruptcyService.co.uk operating. Those partners must charge a fee to the customer to likewise cover operational costs, and this amount will vary depending on the solution offered, and the terms of the parner. For details of these terms, please refer to the website of the organisation dealing with your bankruptcy. Upon application with TheBankruptcyService.co.uk, we will forward your information on to one of our specialist debt partners. You will then be contacted, and you will be able to explain your case, and expert advice will be offered in order to ascertain the most appropriate debt solution.