The disadvantages of bankruptcies uk

To help get you started, we want to share some key facts about bankruptcy that are easy to understand, giving you as much information as possible. So, let’s take a closer look at the details of bankruptcy and get the facts straight.

To begin with, here are the main scenarios to be eligible for bankruptcy:

• YOU CAN’T PAY YOUR DEBT: If you can’t pay off your debts you can make yourself bankrupt at any time for a fee of £680.
• YOU OWE A CREDITOR £5,000: Your creditors can apply for your bankruptcy if you owe them £5,000 or more. However, they must go through a process to make you bankrupt.
• YOU BREAK YOUR IVA TERMS: If you are in an Individual Voluntary Arrangement* (IVA) and you break the terms of the IVA, your creditors can make you bankrupt via an Insolvency Practitioner.

*An Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors to pay back your debts over an agreed period. (Check out our article ‘The Truth about Individual Voluntary Arrangements (IVAs)’)

It’s time to learn the facts to help make an informed decision.

Before you decide that Self-Bankruptcy is the way to go, it’s really important that you fully understand the process, both from a financial perspective and to prepare yourself mentally.

When you apply for bankruptcy, you will be contacted by the Official Receiver and asked to attend an interview. An Official Receiver works on behalf of the Insolvency Service but is also an officer of the court. In the interview, you will be asked questions to help them determine why you are applying for bankruptcy and what assets you have.

It’s important that you fully disclose everything in this interview. If the official receiver suspects you’re hiding any information or details of assets, you could face a court examination.

The next step involves handing over all your assets to either an Official Receiver or an Insolvency Practitioner, depending on your situation. They will then become the trustee of your assets, such as your bank accounts, house, or any other eligible assets you possess. It’s important to note that you may completely lose control of your assets to the trustee. However, you are usually allowed to keep items you need for your job, such as tools or vehicles, and general household items like bedding, sofas, a table, and chairs. However, if these items are worth more than a suitable replacement, you may not be able to keep them

Finally, all your finances will be frozen. You’ll be asked to hand over your bank cards, chequebooks, and credit cards to the Official Receiver, and your bank accounts will be frozen. The trustee may release any money you need urgently to survive, such as for food.

If you have a joint account, your partner's share of the money may be released, but your share will remain frozen. Please be aware that joint bank accounts can get very complicated when asked to prove the share amount. If you choose to take the bankruptcy route, it’s wise to address the joint account situation beforehand. It’s also important to note that any pensions you have could be classed as income and incorporated into the bankruptcy process.

Finally, you’ll be put on an Insolvency Register. This is a public register, meaning anyone can access it and see that you have been made bankrupt. You might think at this point it can’t get any worse, but at least you don’t have that huge debt, right?

It’s important to note that not all of your debts will be written off if you make yourself or are made bankrupt. Some of the following debts may not be included:

• Court fines
• Social fund loans
• Other court debts
• Student loans from the ‘Student Loan Company’
• Child support and maintenance, as well as other costs or payments arising from family proceedings (in some cases, you may be exempt from having to make these payments)
• Debts arising from fraud and personal injury damages that you may have been ordered to pay to someone unless otherwise approved by a judge

It's important to remember that even after filing for bankruptcy, you are not completely free from your debt. Secured creditors, such as your mortgage company, will still require direct payment from you until further notice from the Official Receiver. This ongoing responsibility is a key aspect of bankruptcy that is often misunderstood and needs to be stressed.

When you think you haven’t been through enough already, several restrictions will be placed upon you for the duration of your bankruptcy:

• You cannot borrow more than £500 from anyone without telling them you are bankrupt.
• You cannot act as a director of a company without the court’s permission.
• You cannot create, manage, or promote a company without the court’s permission.
• You cannot manage a business using a different name without telling the people you are doing business with that you have been declared bankrupt.
• You cannot work as an Insolvency Practitioner (would you really want to?!)
• Your bank account and assets could remain frozen for this period.

The restrictions will remain in place until your bankruptcy ends, usually 12 months from the date you were made bankrupt. In most cases, after the 12 months you will be discharged from your bankruptcy. However, if you don’t cooperate, or you break any of the restrictions, or if undisclosed assets are discovered, this could be extended.

Once discharged, you will continue to deal with the long-term effect on your ability to obtain credit or anything that requires a credit check for a minimum of 6 years, sometimes longer. This can include things like phone contracts, car insurance, utility bills and even renting a property, making it very difficult to get your life back on track.

The Real Debt Guy is a qualified financial adviser and a UK debt expert. The information in this article is considered to be true and correct at the publication date.