Bankruptcy Explained
Bankruptcy is an option for any individual who cannot pay their debts "as and when they fall due". The bankruptcy proceeding has two aims:
- To free the individual from the pressures of creditors (people they owe money to) to enable him or her to make a fresh start.
- To ensure that all assets (such as property and investments) are distributed fairly among the creditors.
The Courts are officially responsible for making a bankruptcy order against an individual, although this is done at the request of either the individual or one of his/her creditors.
The assets of the bankrupt individual then fall under the control of a trustee, This will be either the Official Receiver (a civil servant and officer of the Court), or a licensed Insolvency Practitioner. Whoever is appointed becomes responsible for uncovering as much as possible about the debtor’s assets and liabilities and then maximising returns for the creditors from the assets available, within certain guidelines.
Once a bankruptcy order has been made against you your creditors can no longer pursue you for payment. Payment becomes the responsibility of the Trustee.
Bankruptcy Pros
- Pressure is taken off you because you don't have to deal with your creditors.
- You are allowed to keep certain things, like household goods and a reasonable amount to live on.
- When the bankruptcy order is over, you can make a fresh start. In many cases, this can be after only one year.
- The money you owe can usually be written off.
- Creditors have to stop most types of court action following a bankruptcy order (but in some cases still be able to take your belongings away).
- Most creditors have to stop chasing you for the debt and make their claim to the trustee instead.
- It’s a chance to make a fresh start.
- You don't have to personally deal with creditors.
Bankruptcy Cons
- It will cost you money (approx £485) to go bankrupt.
- Whilst you are bankrupt, you can't apply for more credit.
- If you own your own home, it might have to be sold (but you may be able to apply to your local authority for re-housing).
- Some of your possessions might have to be sold, for example, you will usually lose your car and any luxury items you own.
- Some professions don't let people who have been made bankrupt carry on working.
- If you own a business, it is more than likely that the Official Receiver will close down your business, dismiss your employees and sell off the assets.
- Going bankrupt can affect your immigration status.
- You cannot keep your bankruptcy private. A list of bankrupt people is published on the internet and your case could also be published in your local newspaper.
- Even when you are no longer bankrupt you could have another order, called a bankruptcy restriction order, made against you. These orders can be made, for example, where you did not co-operate with the Official Receiver, or you took on debts knowing that you had no hope of paying them back. They can last for 15 years and will make your financial affairs very restricted.
- Even when you are no longer bankrupt there are some debts such as court fines and student loans that will never be written off.
- There is a public stigma with bankruptcy. All people subject to bankruptcy in the UK have their name advertised in two local newspapers and the London Gazette.
- Bankruptcy can effect your ability to run a business because you cannot trade under any other name.
- You can be publically examined in court.
- Your credit rating will be damaged for a long time, up to 6 years.
- Debts to the Student Loans Company will not be written off.
- The trustee in bankruptcy may make you sell your expensive assets.
- Your professional status can be lost.
- Your job may be lost or your chances of promotion.
- You cannot be a director of a limited company.