Bankruptcy is a certain process, it will free your debts with creditors, but you must consider all the consequences very seriously.
By advantages and disadvantages, we mean compared to coming to an agreement with your creditors whereby bankruptcy is avoided.
The outcome is certain –
You will be free from all of the following debts:-
- Unsecured Loans.
- Tax and Vat Bills.
- Credit Cards and store cards.
- Catalogue accounts.
- Any unpaid bills.
- Debt subject to County Court Judgements.
Stress can be reduced.
We are not suggesting bankruptcy is without stress, however negotiating with many creditor at the same time can be worse. Many people feel a burden is lifted when the bankruptcy Trustee takes control of their finances.
You pay back less.
If you are made bankrupt, you may be required to make contributions from income for no more than 3 years. If an informal arrangement is agreed, (as in debt management) then the debts are repaid in full. In the case of a formal arrangement, (as in an IVA) you are normally required to make payments from income for 5 years and in applicable, remortgage your home to free up equity in the final year of the agreement.
There are many things you will have to pay money back for and one of them is for development loans for properties. Individuals are deciding to change their career and get into the world of property development; however they will have to take out finance from either a bank or private lender to fund their project. For property development finance, see this site.
Stops creditors chasing payment.
All creditors are bound by and must accept the Bankruptcy order, not just the one (or ones) petitioning for the bankruptcy. Whether they agree with it or not all unsecured debts are written off after bankruptcy discharge.
Loss of all assets of worth.
You will almost certainly lose all your assets of value that can be sold off. Some items are exempt, for example, equipment needed for work and basic domestic needs. You may have to accept exchange for items of lower value, e.g. trading in the new BMW for a more modest car. For advice on managing your debts, click here.
Potential loss of your home.
If there is equity in your home, then your share of it is claimed as part of the bankruptcy. This may lead to the house being sold if you can’t arrange from someone to buy out your share. Even if the house is in your spouses/partner name, the bankruptcy Trustee may be able to claim it. Typically 50% of equity in the family home is available to the Trustee Read more at Your Home & Bankruptcy.
Potential loss of future assets.
Any assets gained during bankruptcy has the potential to can be claimed by the Trustee. This included windfalls in general and anything bequested in a will. Something of little value at the time of the bankruptcy order, but rising in value may also be seized by the Trustee.
Does not help mortgage arrears.
If you have mortgage arrears, your home may still be repossessed by your mortgage lender.
Does not help rent arrears.
A landlord can still be able to enforce a court order for none payment of rents. Also, becoming bankrupt may violate the terms of a tenancy agreement.
If you are having difficulty securing your mortgage, get advice from 1st Direct Mortgages.
Process can be expensive.
If you are subject to an bankruptcy order and seek to preserve an asset, for example a property, by settling the debts at this time, then you are likely to be charged the costs involved in the bankruptcy.
Closure or sale of business
If you run your own business and it is of value, it will be sold. Otherwise it will be shut down and all employees dismissed. This does not apply in the case of a self employed sole trader.
Investigation of personal finances.
You personal finances and your conduct in relation to them will be investigated by public officials. Becoming bankruptcy is not a crime, but if evidence of fraudulent for irregular activities are found, criminal proceedings may follow.
Effect on credit after bankruptcy
Your credit rating will continue to be adversely effected after bankruptcy discharge, disenfranchising you from financial products and services. You must declare you are a discharged bankrupt when applying for a mortgage at any time in the future. You may find it difficult to obtain a mortgage, especially at the most completive rates offered to other consumers. Discharged bankrupts may have problems opening the most basic of bank accounts.
Utility providers may require pre-payment for services.
Restrictions whilst bankrupt
While serving bankruptcy, there are restrictions on your financial activities and you will be barred from practicing some professions, hence you may lose your job. You may not be the director of a limited company. For more details see Bankruptcy Restrictions.
Bankruptcy Restriction Orders (BRO)
If the Trustee considers you to be blameworthy, reckless or dishonest in your financial affairs and this contributed to your bankruptcy, a Bankruptcy Restriction Order can be made against you. This prolongs restrictions on your activities.
Not all debts are written off
All debts to creditors are (normally) written off in bankruptcy and some not relating to borrowing, however some debt will survive bankruptcy see Debts not included in bankruptcy for details.