Bankruptcy is often regarded as the solution that you use if all your other attempts to resolve your debt problems have failed. However it is actually wrong to view bankruptcy as a negative solution.
Particularly if you are renting or have little or no equity in your property bankruptcy actually offers one of the best ways to solve your debt problem. This is because it can be used even if you cannot afford to pay anything towards your debts and will normally result in significant amounts being written off. It is also normally the fastest way to become debt free as it lasts for far less time than most other debt management solutions.
Government Advice about Dealing with Debt
As well as the information found on this website the Government’s Insolvency Service has produced a useful guide to personal debt solutions which you might also find useful: “In Debt – Dealing with your creditors”.
The Money Advice Service (MAS) are an independent service set up by the Government to provide people with free advice about all aspects of personal finances. For help from MAS if you are struggling with debt please follow this link: MAS – Help if you are struggling with debt.
It is also recommended that you read this one page document produced by MAS entitled “Dealing with debt – 5 things you should know”.
What is Bankruptcy
Bankruptcy is one of the most misunderstood debt solutions. Most people think it is to be avoided however depending on your circumstances it could be a very sensible way to solve your debt problem. The solution will give you instant protection from your creditors meaning they are no longer able to take legal action against you or your home.
You will normally be Bankrupt for just 12 months although you might have to pay towards your debt for 3 years. You will be allowed to keep most if not all of your household possessions although if you own a car worth more than £1000 you may have to sell this and buy a cheaper one.
Find out if Bankruptcy is right for you
Whether Bankruptcy is the right solution for you will depend on your individual circumstances. Different people are affected in different ways so it is important to consider this debt solution in the light of your own specific situation.
First of all you will normally need to be living in the UK (although it might still be possible to go Bankrupt if you moved away recently). It is also important to understand that only unsecured debts can be included. Secured debts such as your mortgage are not written off. It could also be an ideal solution if you are unable to pay anything towards your unsecured debt as in these circumstances you will not have to do so.
The affects of Bankruptcy are widely misunderstood. If you are a home owner your property is not necessarily at risk (although it might be if there is considerable equity in it). In addition most people’s jobs are not affected. Your employer is not told and in fact it is unlikely that anyone will find out.
Do you want help to go bankrupt? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts
The cost to go Bankrupt
If you feel that Bankruptcy is right for you the next thing you will need to consider is the cost. You will be required to pay an upfront fee in cash which is not always easy to do. Having said that there are a number of options that you can consider which will help you get the required money together.
The most obvious of these is saving. You could stop paying your unsecured creditors in the mean time to help you. You could also borrow the money either from friends, family or even by using available credit such as your overdraft or credit card.
Selling your car and buying a cheaper one before you go Bankrupt is also a good way of raising the money you will need for the fee. This is certainly something to consider if your car is worth more than £1000. There are also some options for getting help to pay the fee.
How to go Bankrupt
To decide to go Bankruptcy you will need to go through a number of steps. The first is to complete the necessary application forms. You will then need to submit these in person to your local Court together with the correct fee. If your documents are completed correctly and you are eligible then a Bankruptcy Order will normally be awarded on the same day.
After you are Bankrupt you will have an interview with the Official Receiver. This person will decide whether or not you can afford to make monthly payments towards your debts and what will happen to any valuable possessions such as your car or property.
You can go through the Bankruptcy process yourself. However if you would like help Beat My Debt offers an assistance service.
BMD Tip: The process for going Bankrupt in Northern Ireland and Scotland is different to that of England and Wales. As such it is important to make sure you follow the correct procedure for the country where you are living.
Bankruptcy living expenses guide
One of the key tasks you will need to do as part of going Bankrupt is complete a living expenses budget. This will need to be included in your application form. This information will be used by the Official Receiver to decide if you can afford to pay anything towards your debts each month.
It is vital to get the figures right or your budget might be set too low and you may be asked to pay more than you can afford. There is very little advice and help on the application forms and you cannot get this from the Court. As such using our Living Expenses Guide to help is a must.
How Bankruptcy will affect your Credit Rating
If you go Bankrupt it is important to understand that this will be recorded on your credit file for 6 years which will make your credit rating considerably worse. During this time and possibly for some time afterwards your ability to get new credit, a new mortgage or other financial services will be seriously affected.
Having said that there are some forms of credit that you will still be able to use if you go Bankrupt such as your current mobile phone contract. In addition you may be surprised to learn that Bankruptcy is not likely to affect your credit rating any more than if you started any other debt solution.
Improving your credit rating after Bankruptcy
You will normally be Bankrupt for 12 months. After this your Bankruptcy will end and will be discharged. However your credit rating will still be poor as the record of the Bankruptcy will remain on your credit file for a further 5 years. Nevertheless there are various things that you can do to start to improve your credit rating straight away.
One of the first things you should do is get a copy of your credit file and check for any errors such as incorrectly dated default notices. If there are any they can be changed. In addition it is important to start using credit responsibly as soon as possible. You can do this by applying for a credit repair credit card. If used responsibly you will not be charged interest and the credit history you build up on your file will significant help improve your credit rating.
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