Your guide to bankruptcy
Filed under: Debt
For those being hounded for the non-payment of debts that they cannot hope to clear, however, it is a way of starting again - albeit not with a completely clean slate.
Here, we investigate the pros and cons of bankruptcy and explain how to start the process if you feel bankruptcy is the only way out of your financial problems.
The advantages of bankruptcy
For many seriously indebted individuals, the main advantage of bankruptcy is that it means their creditors stop chasing them for payments.
For those who have been struggling financially for years, it is also good to know that bankruptcy usually lasts just 12 months, after which time the related debts (apart from specific arrangements such as court fines and student loans) are written off.
Contrary to what you might think, bankrupts are also allowed to keep certain "assets" such as household goods.
The disadvantages of bankruptcy
Disadvantages of going bankrupt include that you risk losing your home and any other large assets such as your car, the sale of which will go towards paying off your debts.
If you own a business, it is also more than likely that the Official Receiver will close it down, dismiss your employees and sell off any assets.
And filing for bankruptcy is not free, no matter how bad your situation. In fact, it generally costs at least £700 to go bankrupt.
Other limitations placed on bankrupt individuals include that they are forbidden from applying for more credit during bankruptcy and are very unlikely to be approved for mortgages, loans or credit cards for at least six years.
It is also impossible to keep bankruptcy private as your details will be listed in the Insolvency Register and your case may even be published in the local newspaper if there are exceptional circumstances.
Your bank, landlord and mortgage, pension or insurance providers will also be informed about the situation, which will probably affect your relationships with them.
How to go bankrupt
Some people are forced to go bankrupt due to their creditors petitioning the courts. This can happen to anyone who owes a company or organisation £750 or more.
If you are making the decision to file for bankruptcy, however, you will have to make an application to the courts - usually your local county court - yourself.
Don't get to this stage without approaching a debt charity such as the CCCS to investigate the alternatives, though, as there may well be a simpler and less damaging solution to your financial problems.