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If you’re in a great deal of debt and can’t resolve your problems, bankruptcy is one way out. Bankruptcy is the term for an order granted by the courts for the Official Receiver to handle your debts and those to whom you owe money. In order to do this, the Official Receiver will also gain control over all your finances – savings, investments, assets and possessions. They will ensure that all of your creditors are either paid fairly or that a mutual agreement is made to write off the debt. This process will help you to wipe the slate clean and give you a second chance to manage your future finances effectively. Either you as the debtor can apply to the court for a bankruptcy order (known as a petition), or your creditor(s) can do so if you owe unsecured debts of over £750. The benefit of bankruptcy is that it allows you to start afresh. However, it is really a last resort and has important implications for your future financial health. It should therefore only be entered into after careful consideration. The best thing to do is to speak to a professional financial adviser who will examine your personal situation and will be able to identify the most appropriate solution for you. As a first step, you might want to get in touch with one ore more of the following independent advice organisations which specialise in money problems: • Insolvency Service Bankruptcy – the benefits • you won’t have to deal with your creditors – the Official Receiver will do this on your behalf • the Official Receiver may be able to negotiate an end to any legal proceedings brought against you by your creditors • the Official Receiver may be able to write off your debts • the Official Receiver will provide you with an allowance from your personal finances to ensure that you can maintain acceptable living conditions
Bankruptcy – the drawbacks • the court sometimes levies a charge for the administration of the bankruptcy order, which you will be liable to pay • bankruptcy won’t necessarily write off all of your debts • your bankruptcy is public information and anyone will be able to find out about it by looking at the bankruptcy register • you won’t be able to take out any new financial arrangements during the bankruptcy period (mortgages, loans, credit cards etc) • your personal assets will be used if necessary to raise the funds to pay off your creditors, so you may lose non-essential belongings or even your property • small business owners could lose their business – their company is likely to be wound up • even for people who are employed, their job could be in jeopardy – some organisations will not employ people with insolvency problems, such as banks or other financial services companies • if you have a bankruptcy restriction order made against you (for example if you have been fraudulent or irresponsible in your financial affairs or if you lie to or obstruct the Official Receiver when they are dealing with your bankruptcy order) you may find it hard to obtain future credit To petition for bankruptcy, pick up a ‘petition’ and a ‘state of affairs’ form from your local court or download them from the Insolvency Service site. The forms will require you to declare everything about your financial situation, including everyone to whom you owe money, all the money you have in current and savings accounts and investments, and all of your belongings, from your home to any other assets such as cars, antiques and valuables. You must be open and honest about all of your finances as it’s illegal to make untruthful statements and you could face criminal prosecution if you do so. You could also face criminal prosecution if you attempt to sell or hide any of your assets when petitioning for bankruptcy. You will be granted a bankruptcy order only if the court deems it absolutely necessary, i.e. if it’s the only solution to your insolvency. If you are granted a bankruptcy order, the court will freeze your assets and the Official Receiver will be called in to examine your case. To start off with, you’ll have to have a meeting with the Receiver, who will then get in touch with all the organisations and individuals with whom you have financial dealings to establish exactly how much money you have and how much you owe. The Receiver will distribute a detailed report to everyone owed money by you and will either attempt to pay off your debts or negotiate an agreement to settle them. The whole process usually takes about a year, after which your bankruptcy order will cease. Try not to let your financial situation spiral so much out of control that bankruptcy seems to be the only way out. The best way to deal with insolvency problems is to confront them head-on. Admit there is a problem as soon as you are aware of it and communicate with your creditors to explain your circumstances. They would rather know about it and attempt to come to a mutually acceptable agreement over how you will repay your debt than be left in the dark without any sign of you attempting to repay. If you’re unable to negotiate an arrangement with your creditors yourself, you could go down the more formal route and get in touch with an insolvency practitioner to attempt to arrange what’s known as an Individual Voluntary Agreement. Insolvency practitioners offer a range of services to people with debt problems, such as managing your debts on your behalf. There would of course be a charge for this. This article is copyright protected and is not for republishing |
