PERSONAL INSOLVENCY


Personal bankruptcy is a legal procedure for people whose circumstances are unlikely to change and who have no hope of paying off their debts within a reasonable time. It is a form of insolvency and that's normally only suitable if you can’t pay back your debts in a reasonable time. When you make yourself bankrupt, almost all of your unsecured debts are written off, allowing you to make a fresh start.

 

Why Bankrupt?

  • Debt written off after 1 year and, the fastest and cheapest way of becoming debt free
  • Pay only what you can afford
  • Allowed to keep reasonable assets
  • Alternate debt solutions like IVAs and Debt Management plans tend to drag on for years
  • Bankruptcy removes the pressure of having to negotiate with your creditors
  • Bankruptcy removes the problem of having to deal with Bailiffs.

The moment the bankruptcy order is made, you will achieve relief from pressing creditors. Depending on your circumstances, you will be automatically discharged from bankruptcy anywhere within 12 months.


Should I go for bankruptcy?

All too often the very people who would benefit most from entering into bankruptcy dismiss the idea out of hand due to a fear of the repercussions. It usually comes down to a simple lack of knowledge of the facts. Listed below are the suitable circumstances for those who might benefit from entering into the protection of a Bankruptcy Order:

  • People with no assets (including those with no equity in their property).
  • People living in either rented accommodation or with friends and family.
  • Those whose employment would not be lost or adversely affected by a Bankruptcy Order (You can easily check your contract of employment).
  • People who agree with the moral aspect of bankruptcy.

Misconceptions

It is a generally held misconception that personal bankruptcy is punitive and that bailiffs will seize your goods and chattels leaving you nothing but a change of clothes. This is false. You enter into the protection of a Bankruptcy Order to do exactly that; to protect yourself from creditors and to make a fresh start. Under Section 283(2) of the Insolvency Act you are allowed to keep the tools of your trade, all clothing, bedding, furniture and even your car (provided it’s not too expensive and subject to certain conditions) the general principle is that your goods and chattels are safe.

 

With the introduction of the Enterprise Act in 2004, the mandatory period required to serve under Bankruptcy has now been reduced from three years to one. Bankruptcy is no longer the punitive action of years gone by and is designed to allow people the opportunity of rebuilding their lives. In some cases, bankrupts can be discharged from bankruptcy in as little as four months at the Official Receiver’s discretion. An early discharge is possible provided no creditors object. For those granted an early discharge, the average discharge period is around 7 months.

 

You can keep the following items of property unless the individual value of each is more than the cost of a reasonable replacement:

  • Tools, books, vehicles, and other items of equipment necessary for your personal use in your employment, business or vocation; and clothing, bedding, furniture, household equipment (for example, a cooker) and possessions necessary for satisfying your basic domestic needs of you and your family.
  • You will be able to keep most household items, including furniture, televisions and similar items.
  • Vehicles up to the value of £2000 are usually safe in bankruptcy provided you can show they are required for work purposes.
  • Vehicles on finance are usually allowed in bankruptcy.
  • Inland Revenue approved pensions are safe in bankruptcy.

Effect on credit rating

You should understand that when you declare yourself bankrupt, you will stop making your normal monthly payments to your creditors. This means that your accounts will go into arrears. This will have a negative effect on your credit rating.

 

Debts You Cannot Discharge in Bankruptcy include:

  • magistrates court fines
  • any payments a court has ordered you to make under a confiscation order, for example, for drug trafficking
  • maintenance payments and child support payments, including any lump sum orders and costs that have arisen from family proceedings, although you may be able to ask the court to order that you don't have to pay this debt
  • student loans
  • secured loans and other secured debts, such as debts secured with a charging order
  • debts you owe because of the personal injury or death of another person, although you may be able to ask the court to order that you don't have to pay this debt
  • social fund loans
  • some benefits and tax credits overpayments.