Bankruptcy has traditionally been seen as a last resort when it comes to debt solutions. It’s often associated with negative connotations such as social stigma, unpleasant court appearances, problems with employment and getting credit in the future…and so on.
But the truth is that some of these time-honoured assumptions are quite simply out of date. And if you find yourself unable to pay debts that are worth more than your assets, bankruptcy could actually be your best option for managing your money problems. Let’s take a look at the facts.
Homeowner or not – it’s still an option
One of the commonest myths about bankruptcy is that you’ll always lose your property if you’re a homeowner. Nowadays, this often isn’t the case. There are a number of ways you can get round the issue, such as the option for a friend or relative to buy your share of the property so you can still live there. Your bankruptcy Trustee will discuss these with you.
But if you’re renting a house or flat, or still live at home, and don’t own any other significant assets, you may literally have nothing to lose by declaring yourself bankrupt. Yes, you’ll have to pay court fees and comply with certain restrictions during your bankruptcy period, but if everything’s straightforward, you’ll be discharged after just 12 months. In most cases, this means most or all of your debts will be written off – leaving you free to make a fresh start.
Bankruptcy can be the quickest way to get debt-free
As noted above, you could be walking away from your debts just a year after your Bankruptcy Order is made. In comparison, typical lengths for other debt management options include:
- Debt Management Plan (DMP) – usually several years
- Individual Voluntary Arrangement (IVA, England and Wales) – usually 60 months
- Protected Trust Deed (PTD, Scotland) – usually 48 months
- Debt Relief Order (DRO) – usually 12 months but can be extended, plus very strict eligibility criteria.
So if your circumstances mean that bankruptcy is your best option, it could also be the fastest way to resolve your debt problems.
You’ll be protected from your creditors
Once your Bankruptcy Order has been made, your creditors will usually stop contacting you and any other type of court action that they’re taking against you will also stop. The Official Receiver or Trustee appointed to manage your estate will take over all contact with your creditors, so you’ll no longer have the pressure and hassle of dealing with them directly by phone or letter.
Whilst some other debt management options also offer legal protection from your creditors (DMPs are an exception as they’re an informal arrangement rather than a legally-binding form of insolvency), it’s worth noting that your creditors can still try to force you into bankruptcy if your chosen solution fails for any reason.
So if you can’t see yourself sticking to a long-term payment agreement with your creditors, as would be required by a DMP, IVA or PTD, it may be best to prevent this happening by simply choosing bankruptcy instead.
You’ll still have enough to live on
Declaring yourself bankrupt doesn’t mean you’ll be left penniless. Even if the court asks for regular contributions from your pay packet to be passed to your creditors (known as an Income Payments Agreement or Income Payments Order), they’ll always make sure you have enough money left over to pay for essential living expenses.
You’ll also be able to keep assets such as household goods that you need for day to day life, with special allowances often made if you have children or vulnerable adults living with you. For example, if you own an expensive car, you may be required to sell it but then allowed to buy a cheaper one so you can get to work, take your children to school and so on.
Always weigh up the pros and cons
Like all debt solutions, bankruptcy has its disadvantages as well as its advantages, and it’s important to consider these very carefully before deciding how to deal with your debts. Bankruptcy Clinic is here to help you find the right answer.
As our name suggests, we’re experts in all things bankruptcy-related. Our specialist advisers will take the time to listen to and understand your individual circumstances, before talking you through all your available debt management options.
Contact Bankruptcy Clinic today
The sooner you get in touch, the sooner we can help you start overcoming your debts. Call us today on 0808 168 7389 or 01625 462 770, or complete our enquiry form to request a call back.