Bankruptcy

Opting for bankruptcy should only be taken as a last resort where you have serious debt problems and cannot repay your debts within a reasonable amount of time. Here we will analyze some of the key points in regards to this solution.

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Understanding Bankruptcy

This option is available to people living in England, Wales and Northern Ireland. Bankruptcy will enable you to write off (with certain exceptions) all of your unsecured debt.

A formal legal process must be followed. An individual can petition for their own bankruptcy or one or more of your creditors can instigate the process.

You can apply for bankruptcy through the Insolvency Service if you live in England and Wales or the High Court if you live in Northern Ireland. You have to pay a deposit of £680.

All your unsecured debts (with certain exceptions such as court fines and student loans) will be included in your bankruptcy including any mortgage shortfalls. Control of your money and ownership of your possessions is transferred to the Official Receiver. If your application for bankruptcy is approved, your creditors will stop contacting you and they cannot take legal action against you for what you owe them.

Bankruptcy involves selling your high value assets (including your car and house) and other items that you own in order to repay your debts. You may also need to make monthly payments from your disposable income for a three-year period if the value of your assets are insufficient to repay your debts and the costs of the bankruptcy in full.

The process of bankruptcy typically lasts for one year, by the end of which any remaining debt you have is written off. Declaring bankruptcy will become public knowledge which could affect your reputation and career opportunities in the future.

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What you need to do if you want to declare bankruptcy?

To apply for bankruptcy you can use an online application form available on the government agency website where you will need to fill in your details as well as your income and expenses.

You will also need to provide copies of correspondence where you have been contacted by bailiffs or debt collectors. Your application will be sent to an official adjudicator, who will review the application and decide whether or not to declare your bankruptcy. The next step is to pay the £680 fee and wait for 28 days for a decision to be made.

If you have a business partner and you have any debts together you can apply for a joint bankruptcy as long as everyone involved agrees to it. Couples, however, are unable to apply for joint bankruptcy and must apply individually, even if the debts are jointly owed. Be careful though if you and your life partner have joint debts, where you are both named on the credit agreement, if one of you goes bankrupt, the other person will be responsible for paying the full amount owed on their own.

Is declaring bankruptcy a good solution for me?

You should always enter bankruptcy as a last resort and only consider if the following criteria are met:

  • If your total unsecured debt is higher than the value of assets you own

  • If you think it is truly impossible for you to repay your debts within a reasonable time

  • If your monthly disposable income is too small to afford payments into a scheme such as an IVA

  • If you believe that your financial situation will not change in the future or will even deteriorate further

How to declare Bankruptcy

  • It is very important to get the best advice when considering bankruptcy as it may or may not be the best debt solution for you.

  • Before you declare bankruptcy withdraw enough cash to be able to live on until your next pay day because after approval the bank accounts will be frozen

  • Fill in your Application and pay the £680 fee

  • After your application for bankruptcy is accepted, your bank accounts are immediately frozen.

  • An ‘official receiver’ will be assigned to your case who will then decide which of your assets will be confiscated and if you will need to make any monthly payments.

  • Details of all bankruptcies are recorded on the public Insolvency Register.

  • During your bankruptcy, you will also need to open a new bank account for wages and living expenses.

The advantages to declaring Bankruptcy

  • By declaring bankruptcy you are given the chance to start a new after one year.

  • If your creditors are coming after you you might be able to get rid of the pressure by transferring all the communications to the official managing your bankruptcy.

  • The companies included can no longer take legal action against you.

  • You’ll be able to keep your essential belongings, a car that is worth less than £1,000 and money for everyday life.

  • If you’re self-employed or own a small business you can keep everything necessary to keep working and running your small business.

  • If you do not own your house then you will still be able to live in it.

The disadvantages to declaring Bankruptcy

  • Your bankruptcy will be reflected on your credit score and will affect negatively your ability to take credit for the next 6 years

  • Your bankruptcy will be put on public record which might affect your career

  • You will lose ownership of your home and any assets/cars worth more than £1,000

  • You will not be able to work as a company director or be involved with the management of a limited liability company.

  • You need to pay £680 to go bankrupt.

  • You will not be able to apply for British Citizenship

What happens after one year?

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You will normally be discharged from your bankruptcy after 12 months and any remaining debts will be written off. It is recommended that you request a letter of discharge to have official proof of the fact.

Your discharge does not mean that you will not continue paying any monthly payments that you still owe, for example, under a three-year income payment agreement.

By the end of the bankruptcy, you will be informed of this by the official receiver and most of the debts that have been included will be written off. However, you need to keep in mind that a bankruptcy restriction order made against you might continue for the next 15 years.

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"Become Debt Free" is a trading name of Re10 (Finance) Ltd (company number 4651137) with offices based in Leeds and London. We specialise in providing and administering Individual Voluntary Arrangement (“IVA”) solutions to individuals based in England, Wales and Northern Ireland. We do not administer Debt Management Plans, Debt Relief Orders, or any other debt solutions.  We only provide advice after completing or receiving an initial fact find where the individual(s) concerned meets the criteria for an IVA, therefore, all advice is given in reasonable contemplation of an insolvency appointment. Re10 is regulated by the Insolvency Practitioners Association.

To qualify for debt write off in an IVA with us, you must have a minimum of £7,000 of qualifying unsecured debt owed to two or more creditors. A debt write off amount of between 25% and 75% is realistic, however the debt write off amount for each customer differs depending upon their individual financial circumstances and is subject to the approval of their creditors.

Andrew Bowers FIPA FABRP is authorised by the Insolvency Practitioners
Association to act as a Licensed Insolvency Practitioner.

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