When you first think about the possibility of Bankruptcy the very word may cause you to become extremely anxious and concerned. It is often seen as the debt management solution which is used as a last resort.

However if you take the time to learn more about what it really means you will see although it must not be entered into lightly, for many people going bankrupt is the very best way to get out of debt. Here are answers to 5 questions which people always ask about this debt solution.

1. How long will Bankruptcy last?

You will usually be bankrupt for the standard 1 year (12 months). It is very unlikely that this period will be extended or reduced.

The time period could be extended to up to a maximum of 15 years if you get a Restriction Undertaking. However any extension is unlikely unless you are found to be not co-operating with the official receiver.

BMD Tip: Over the last two or three years it did become more usual for people who had little income or assets to be discharged  in a shorter period than 12 months. However the guidelines about this were recently tightened up. It is therefore likely that almost everybody now will remain bankrupt for the standard 12 months.

2. Will I have to sell my house if I go bankrupt?

If you are renting your property you really do not need to be concerned about going bankrupt. Your landlord may be told but if this happens they will normally be happy for you to remain in your property as long as you maintain your rent payments.

If you are a home owner you need to be clear on what will happen to your home. As soon as you declare yourself bankrupt (or very soon after this) your title to your property will be transferred to the official receiver.

If your property is in negative equity you may be able to make an offer to buy back your title immediately. If you do not do this the official receiver can hold on to it for 2 years and 3 months.

After this time your house will be valued. If it is still in negative equity then it will be returned to you. If there is minimal equity a charge may be put on your property before it is handed back to you. If the equity has increased considerably your property may be sold to release the equity unless you can make other arrangements to release it.

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3. Can I keep my car if I go Bankrupt?

You are not automatically allowed to keep your car in Bankruptcy. If you have a car and can reasonably justify keeping it (perhaps because you need it to get to work) then the official receiver should allow you to keep it as long as it is worth less than £1000.

If your car is worth more than £1000 you will normally be required to sell it and get a cheaper one. If you find yourself in this situation and you want to keep your car you may be allowed to do so if a third party can pay the amount that the car is worth to the official receiver thus avoiding the need to sell it.

BMD Tip: If your car is worth less than £1000 but you cannot justify keeping it the official receiver may still require you to sell it so that any funds received can be put towards your creditors.

4. How much will I have to pay towards my debts if I go bankrupt?

When you go bankrupt the official receiver will review your income and reasonable living expenses. If you have any surplus income after your reasonable living expenses are paid for you must expect that you will be asked to pay towards your debts.

Before December 2010 the official receiver had a degree of flexibility about allowing you to keep some of your surplus income. However the rules were then changed. Now you must now expect to make a payment of your total disposable income if this is above £20/mth.

If you are asked to make an income payment towards your debts this is called an income payment agreement (IPA). IPA payments will last for three years from the date of the first payment and so will normally continue for at least two years after you have been discharged.

5. Who will find out I am Bankrupt?

Very few people will actually find out if you are Bankrupt. It is no longer published in the local newspaper and so it is now a far less public procedure than it used to be.

Your employer will not be told however if you are renting your property you need to be aware that your landlord may be informed. It might therefore be a good idea to warn them beforehand.

Despite the fact that Bankruptcy is no longer publicised your name will be added to the insolvency register together with your address. This is a public document and is easy to access via the internet. As such if anyone wants to check to see whether you are bankrupt, it is easy to do this by logging on to the register and searching on your name.