If you know nothing about Bankruptcy but have debts that you simply cannot pay it is worth your while finding out more about this debt solution. For many people it can be the best way of dealing with debt and it is certainly not as scary as it sounds.

One of the key advantages is that if you are unable to repay anything towards your debts you will not have to do so and after just 12 months you will be discharged and your debt will be written off. The solution can even be suitable for you if you are a home owner. If your property has little or no equity in it or is in negative equity it is probably not at risk.

However despite these obvious benefits Bankruptcy is not right for everyone. We will explain in a little more detail the basic facts and things you need to watch out for.

Bankruptcy lasts for 12 months

In most cases Bankruptcy lasts for just 12 months. At the end of the 12 months you will be automatically discharged and in most cases your debts will be written off straight away.

You may find this confusing as you might have heard that it lasts for a longer period of time but is not the case. However if you can afford to make monthly payments towards your debts it is these which will last for longer.

You may have also heard that it is possible that your bankruptcy could be extended for up to 15 years. It is true that this is possible with what is known as a Bankruptcy Restriction Undertaking (BRU). However this is only issued rarely where an individual purposely tries to hide assets or does not cooperate with the official receiver in other ways.

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Bankruptcy is quick to implement

The solution can be implemented very quickly. Once you have filled out your application forms you take these to your local court with your fee in cash and you will be declared Bankrupt the same day. This means that you can get immediate protection from your creditors.

As soon as this happens your creditors are not allowed to take any further action against you. This means that they must stop calling you, writing to you and any debt collectors or bailiffs must stop coming to your door.

Even if your creditors have already taken legal action against you in the form of a County Court Judgement (CCJ) or an Attachment of Earnings these things are overturned.

Once Bankrupt you pay nothing unless you can afford to

Once you are bankrupt the official receiver will review your income and reasonable living expense requirements. You will have provided this information in your application forms.

If your income is only just enough to cover your living expenses or is actually lower than what you reasonable need to live on then you will not be asked to pay anything towards your debts.

If your income is higher than your reasonable living expenses you will need to pay the excess to the official Receiver. These payments will last for 3 years after which you will be free of your debts.

Bankruptcy will not normally affect your job

Your employer will not be told by the court or the official receiver if you go Bankrupt and most people’s jobs will not be affected. For this reason your employment will almost certainly not be affected at all.

The only time when your job could be affected is if your employment contract states that it is a problem if you become insolvent. This is rare but it can happen for some people who work in financial services. In addition there are a number of specific positions which are affected by being bankrupt such as  company directors, members of The Law Society and pub landlords.

If you are a sole trader you can continue to trade as usual. Bankruptcy does not mean that you have to give up your business. However it may mean that will need to trade in a different way because you will no longer be able to get credit.

You have to go to your local County Court to declare yourself bankrupt

One of the things that worries some people about the bankruptcy process is the need to go to Court. This sounds very worrying indeed. However actually the process is a lot simpler than you might think.

Once you have completed your application forms you need to take these together with the your fee in cash to your local county court. There the court clerk will check over your forms to ensure they have been completed properly.

Depending on the requirements of the local court you may not even need to see a judge. You will simply be issued with your Bankruptcy Order and can go home.

If your particular Court’s process is that everyone has to see a judge this will be a short private meeting. It will normally involve simply making sure that you have taken advice and you understand what you are doing.

You will not automatically have to sell your house in bankruptcy

If you own your own home it does not automatically have to be sold if you go Bankrupt. In fact if there is little or no equity in your home, or the property is in negative equity it is very unlikely that your house will be at risk.

The official receiver does take over your interest in property. However where there is no equity as long as you maintain the mortgage payments and property prices do not rise significantly after 3 years this interest in your property will simply be returned to you.

Your property is only at risk if there is substantial equity in it as the official receiver will have to try to release this to pay towards your creditors. However even in this situation your home may not have to be sold as the receiver will give you the opportunity to find the funds to buy back your title with an amount equivalent to the value of the equity. This money could be borrowed from family or friends.

You will not lose your household belongings if you go bankrupt

You may also be worried about what will happen to your household belongings in Bankruptcy. In fact there is no need. You will be able to keep all of your normal household items including your clothes furniture, laptop and electrical goods unless they are very valuable.

One area you have to be careful of however is your car. If it is worth more than £1000 then the official receiver will want you to pay the difference between its value and £1000 towards your creditors.

This could be done by selling the car, buying a cheaper one and giving the receiver the difference or asking a third party to pay the difference to the receiver for you. Normally you will only be able to keep a more expensive car if you have a special requirement or need it as a tool of your trade.