If you are having a debt problem, to sort it out one of your options might be bankruptcy. You can apply for bankruptcy if you can’t pay back your debts. Moreover, as applying for bankruptcy yourself, someone else you owe money to (a creditor) can apply to make you bankrupt, even if you don’t want them to. For a creditor to make you bankrupt, you must owe at least £5,000.
Remember, bankruptcy might not be your only option and it might not be the best one for you. One of your other options might be a debt relief order. You could be able to apply for a debt relief order if you are not a home owner, have debts, income and assets below a certain amount. This is a cheaper and alternative to bankruptcy.
Advantages of going bankrupt are when the bankruptcy order is over you can make a fresh start (in many cases this can be after a year). Other advantages of going bankrupt include:
- you’re allowed to keep certain things, like household goods and a reasonable amount to live on
- the money you owe can usually be written off
- the pressure is taken off you because you don’t have to deal with your creditors
- creditors have to stop most types of court action to get their money back following a bankruptcy order
Disadvantages of going bankrupt are that you’ll need to pay a £680 fee which can be paid in instalments but the application cannot be submitted until the fees have been paid in full. Other disadvantages of going bankrupt include:
- if your income is high enough, you’ll be asked to make payments towards your debts for 3 years
- if you own your home, it might have to be sold (but you may be able to apply to your local authority for re-housing)
- it will be more difficult to take out credit while you’re bankrupt and your credit rating will be affected for 6 years
- if you own a business it might be closed down and the assets sold off
- some of your possessions might have to be sold, for example, your car and any luxury items you own
- if you are, or are about to be, the right age to get your pension savings, these might be taken
- some professions don’t let people who have been made bankrupt carry on working
- your bankruptcy will be published publicly (although if you’re worried you or your family maybe the victims of violence, you can ask that your details aren’t given out)
- going bankrupt can affect your immigration status
The bankruptcy will normally end after a year but Official Receiver will tell you exactly when it is over. Most of the debts that haven’t been paid will be written off although some debts like court fines and student loans can never be written off.
Even when you’re no longer bankrupt, you could have a bankruptcy restriction order made against you. This can last up to 15 years and will restrict your financial affairs. This order could be made if, for example, you do not co-operate with the Official Receiver, or you take on debts knowing that you won’t be able to pay them back.