Bankruptcy

Attitudes to bankruptcy have changed in recent years.  People who have genuinely found themselves unable to repay their debts through little fault of their own can now expect quite sympathetic treatment.

Since April 2004, the law has been changed to ease bankruptcy restrictions.  Instead of having to wait 3 years to be discharged, regardless of circumstances, most first-time bankrupts will be discharged after 12 months, or even sooner. Interviews with the Official Receiver, acting as your Trustee, can now be dealt with by telephone and there is better protection for pension rights.  Read more about the consequences of bankruptcy.

Advantages

• All debt, which is not secured by personal assets or specifically excluded by law, will be included within your bankruptcy and all responsibility for dealing with your creditor claims will pass to your trustee.
• Any legal proceedings threatened or initiated by unsecured creditors are immediately suspended.
• Your trustee may ask you to make affordable contributions from surplus income for a period not usually exceeding 3 years.
• You can keep your ordinary household goods, tools of your trade and pension fund.
• Once discharged, you will be free of all eligible unsecured debt and your creditors can make no further claim against you. 

Disadvantages

• Large value assets will be subject to seizure for sale. This could include your family home.
• Any "windfalls" such as an inheritance or a lottery win will be available for your creditors.
• Your bankruptcy will be registered with credit reference agencies and your credit rating will be affected.
• You will not be able to take credit for any one transaction of more than £500 without disclosing your bankruptcy.
• Professionally qualified people may have their practising certificate suspended.
• A bankrupt cannot act as a company director.
• Certain debts arising in matrimonial proceedings, and other debts e.g. student loans, may not be discharged.
• If your trustee finds that you have been 'reckless' in accumulating your debt you may be subject to a bankruptcy restriction order.

Best suited to...

Bankruptcy may be the best option if your debts are escalating and your repayments are unmanagable, you do not own a property or have any other significant assets, and you have no reason to fear the effect of bankruptcy on your livelihood.  It is important that before considering  bankruptcy you fully understand the consequences.  Read our Debt Articles for more information on the consequences of bankruptcy and your alternative options.

To get an immediate indication of the option that may be right for your circumstances complete our Self-Assessment Debt Test.