Bankruptcy is a potential way for individuals who owe a large sum of money to deal with debts that they can’t pay.
It’s a common procedure that wipes away all secured and unsecured debts – but it is also a very serious procedure and a decision that shouldn’t be taken lightly. If you owe large amounts of money and are struggling to pay your creditors, read on to find out more about the bankruptcy process, how it works, and if it’s right for you.
The bankruptcy process
Bankruptcy is a legally binding procedure and should not be seen as an easy way out. The process involves the sale of all assets owned by the debtor, with all the values made from the sale being distributed between creditors. Throughout the bankruptcy process, the debtor’s income is also scrutinised and a repayment plan is drawn up, dependent on what the debtor can afford to repay after household expenditure. The bankruptcy period usually lasts 12 months, after which the debtor will be discharged and the remaining debt is written off.
Is bankruptcy right for me?
Bankruptcy could be a suitable solution for debtors who owe more than £15,000 in secured and unsecured debt and are unable to meet their repayments. It may also be the most appropriate options for debtors who don’t own their own home, or those who have accepted that their property will be sold in order to satisfy their debts.
Are there any alternatives?
Bankruptcy is a legally binding procedure with a number of serious future consequences, which means that you should carefully review all the options available to you before making a final decision on whether or not to proceed. Other alternatives for individuals in a poor financial situation include an Individual Voluntary Arrangement or a Debt Management Plan, so it’s important to seek advice from an expert insolvency practitioner to make sure you choose the right solution for you.
What are the advantages of bankruptcy?
Although it is a serious procedure, if you owe a lot of money and find that you can’t keep up with your repayments, there are a number of positives to the bankruptcy process:
- In most cases, bankruptcy lasts for 12 months which is shorter than an IVA
- Large amounts of debt can be legally written off
- After the debtor is discharged from bankruptcy, no more money is owed to the creditors
- Bankruptcy no longer has the same stigma attached to it as it once did
What are the disadvantages of bankruptcy?
Of course, as with all insolvency solutions, there are a number of disadvantages that should be taken into account too, such as:
- If you own your own home, these will be sold to repay creditors
- Your financial affairs will be scrutinised and full disclosure is necessary
- A notice of the bankruptcy will be placed in the London Gazette
- Information will remain on your credit report for at least six years
- Restrictions will apply for the period of the bankruptcy
- You may have to declare your bankruptcy to your employer or professional body
How much will I have to repay?
The amount you will need to repay will very much vary depending on your individual situation, how much you owe and your personal income and expenditure. However, at McAlister & Co we provide free, no-obligation advice about your individual circumstances, so if you are unsure about how much you can afford to repay, our expert team will be more than happy to advise.
How does the bankruptcy process work?
If you decide that bankruptcy is the best way forward, the process will be as follows:
Step 1 – Application
To start the process, you will need to complete a bankruptcy order application and present it to the court. On the same day, you will be required to pay the fees of approximately £700.
Step 2 – Assessment
If your petition is granted by the court, you will then meet with the Official Receiver whose office will assess your assets, income and expenditure.
Step 3 – Payments
If you have any surplus income after normal household expenditure, this money will be in the form of an Income Payments Agreement (IPA). If you don’t consent to the IPA, an Income Payments Order (IPO) could be enforced and may be issued directly to your employer so that the sum is dedicated directly from your paycheque. What’s more, the Official Receiver will also attempt to raise money through the sale of any property and assets. All this money will then be paid into ‘the estate’, which the Official Receiver is Trustee of, and shared amongst your creditors.
Step 4 – Discharge
In most cases, bankruptcy restrictions will end on the first anniversary of the bankruptcy order. Once ‘discharged’ from the bankruptcy, you will be released from the debts.
Can a creditor make me bankrupt?
Any creditor to whom you owe more than £750 can ask the court to make you bankrupt through a Creditors’ Petition for Bankruptcy. In this case, the process is the same, but the creditor must pay the required fees. If a creditor is petitioning for bankruptcy against you and you disagree, it’s important to seek professional advice immediately to decide on the best course of action to be taken.
What to do next
If you are facing financial difficulty, are struggling to pay your debts and believe that bankruptcy is the best way forward, it’s important to seek advice as soon as possible. The sooner you seek help, the more options you will have available, so contact McAlister & Co today for expert help and advice surrounding the bankruptcy process and how it all works.
Above all, remember that you don’t have to face financial difficulty alone. We don’t even need any personal details to answer initial questions on your situation, so call us today on 03300 563 600 for free confidential advice.