If you’re finding yourself drowning in debt and no other options are available to you, bankruptcy could be your best option for dealing with your money problems. However, did you know that not all types of debt can be included? This means that you’ll still need to find a way to manage these debts during your bankruptcy and after you’ve been discharged, at which point all included debts will be cancelled.
Debts that can be included
Like other forms of personal insolvency such as Debt Relief Orders and Individual Voluntary Arrangements, bankruptcy is principally designed to help you get free of unsecured debts. These include:
- Credit cards
- Store cards
- Personal loans
- Payday loans
- Catalogue debts
- Bank overdrafts.
Some other forms of debt can also be included, such as:
- Rent arrears (be careful with these as your landlord can still evict you)
- Council tax arrears and current tax bills
- Arrears from previous utility accounts and old secured debts
- Tax-related debts such as self-assessed income tax, VAT and National Insurance
- Fixed penalty charges like parking fines.
When you fill in your Bankruptcy Petition, it’s important to include information about all these debts to make sure they’ll be included in your Bankruptcy Order. This involves providing the name and contact details for each company or organisation that you owe money to, plus the latest outstanding balance for each debt.
When your Bankruptcy Order has been made, the Official Receiver or Trustee that takes control of your estate will then write to all these creditors telling them about your bankruptcy. From this point, your creditors can no longer pursue you for these debts and you’ll no longer have any direct contact with them.
If the Official Receiver decides that any of your assets need to be sold, the monies raised will be distributed to these creditors to help pay off your debts. You may also be asked to monthly repayments if you can afford this, in which case the court will make an Income Payments Agreement or Order against you that can last for up to three years.
If this happens, your bankruptcy will be discharged when the Agreement or Order comes to an end. Any outstanding balance on your debts will then be cancelled. However, if you’ve not been asked to make regular repayments, your bankruptcy will normally be discharged and your debts written off just 12 months after your Bankruptcy Order was made.
This means that if all your debts can be included in your bankruptcy, you could find yourself debt-free and able to make a fresh start just a year later.
Debts that can’t be included
The types of debt that aren’t covered by bankruptcy include:
- Secured loans, including mortgages and any related arrears
- Hire Purchase debts
- Benefits overpayments
- Court fines
- Child maintenance arrears
- Non-provable debts
- Legal costs such as a personal injury claim made against you
- Current utility and service bills
- Student loans.
Because these debts can’t be included, you’ll need to keep up repayments against them throughout your bankruptcy period and afterwards. If you don’t do this, you could face serious consequences such as having assets repossessed or creditors taking court action against you.
When the Official Receiver or Trustee dealing with your bankruptcy looks at your finances, they’ll always make allowances for debt repayments like these, as well as your essential living costs, when calculating your disposable income.
However, they’ll also look closely at your assets to see if any of these could be sold to help repay the debts included in your bankruptcy. This includes any property you own, or your share of any equity in it, plus the equity in any valuable assets such as vehicles that are subject to a Hire Purchase agreement.
This means that you could lose your home or any other expensive assets that you own, although this could be avoided if a partner, relative or friend can buy out your share of them. So you could stay in your house or flat even if you’re required to sell your interest in it to another person.
Could bankruptcy be right for you?
As you can see, different types of debt can make a big difference to the consequences of declaring yourself bankrupt. That’s why it’s so important to seek expert advice before going ahead. Bankruptcy Clinic will help you decide on the right way forward for your individual circumstances and support you through every step of your chosen debt management solution.
Contact Bankruptcy Clinic today
Call us free on 0808 168 7389, or call 01625 462 770 from a mobile. Or complete our simple online form and a friendly, qualified adviser will get back to you as soon as possible.