Bankruptcy – Explained in full in English

Bankruptcies are rising fast and a lot of the visitors that come to this site are looking for answers to fill what the gap that currently exists between the demand for information and the level of straightforward useful information on bankruptcy freely available.

It’s going to come in many parts over the coming weeks so if you don’t find the answers you’re looking for immediately, ask a question in the question and answers part of the website and we’ll answer it for you.

Which debt solutions is best for you?

Bankruptcy – A bit of background

The fact that you’re reading this normally means two things.

  • You are either being forced into bankruptcy by your creditors
  • You are thinking about making yourself bankrupt as a way of wiping the slate clean and starting again

But what’s perhaps more significant is that you are taking the time to find out more about bankruptcy so you can make sure it’s the right option for you, and ensure you armed with the know-how you may need to fight your corner if, as and when the time comes.

The lack of clear, honest and practical information on bankruptcy is in our opinion a travesty. What we can promise you is that this guide will be the best and most practical guide to bankruptcy we can provide.

Take a step back and you’ll see that you’re not alone

It’s forecast that there will be over 150,000 people made bankrupt this year, and most of them will tell a similar story to you. Here’s a typical profile of someone we’d be helping.

    • Bankruptcy will either be being forced upon them or they will be looking for a way out and bankruptcy seems like a good choice
    • There have been years of debts, missed repayments, and stress caused reasons that range from bad money management to business failure

A Bankruptcy Courts Survey reported other common features:

  • More men than women became bankrupt
  • People of all ages become bankrupt
  • Most people who become bankrupt are not homeowners
  • Bankruptcy is a common contributing factor to marriage break-up

What are you afraid of?

Everyone knows that there are consequences associated with Bankruptcy. These fears normally include:

  • Fear of long term credit problems
  • Fear of the unknown
  • Fear of having your belongings repossessed
  • Fear of having everyone know about your bankruptcy
  • Fear of losing your home or eviction
  • Fear of your families reaction
  • Fear of imprisonment

That’s a lot of different fears and we’ll be dealing with them in this guide. You’ll find the more you know about the process, the less you’ll need to fear it.

Why you need to take the emotion out of debt

Being in debt is one of the most stressful and emotional life experiences there is. Of course we don’t need to tell you that, but what is really important for you to know is that if you can be objective and stand back from the chaos, the calls, letters, bailiffs, and other demands being placed on you by life, you’ll get though this experience with a better solution or result, in less time and with fewer battle scars.

The people involved?

Bankruptcy is a legal process governed by laws that are unfortunately complicated. In this guide we’re going to simplify the key areas of bankruptcy law, help you understand some of the legal nuisances of bankruptcy, and introduce the people you’ll be dealing with. Let’s deal with the easy one of those first. The people. If you become bankrupt you be dealing with:

  • The Insolvency Service – a government body with offices throughout England, Wales and Northern Island, and staffed by civil servants. Each office has an Official Receiver who either administer the bankruptcy themselves or if the asset value is significant, appoints
  • An Insolvency Practitioner – A type of accountant authorised to administer the bankruptcy and act as the trustee
  • Bankruptcy judges and registrars – make up the full compliment of people you’re likely to have to deal with

Although these people are on the whole sympathetic to other people who are obviously suffering, you do occasionally get ones that have had an emotional and personality bypass. If you need to deal with one of these, stay calm, keep your head, it will be over sooner than you think.

How bankrupcy compares

Solutions Debts Written Off Legally Binding Interests & Charges Residential Status Fees Notes
IVA Yes – Average 58% Yes Stopped Tenant or Homeowner (Eng/Wales) Yes on average around 20% of the payments you make to creditors Typically you must have debts over £15,000 and be able to offer yourcreditors about 20% of the value of the debt back over 5 years.
Debt Management No No Many Freeze Tenant or Homeowner Yes In a Debt Management Plan, you will be required to repay all of your debt in full.
Consolidation No yes New Rates & Charges Tenant or Homeowner Yes Consolidating your debts generally means you’ll pay more back over a longer period of time.
Bankruptcy yes yes Stopped Tenant or Homeowner (Eng/Wales) Yes – up to £700 depending on your circumstances. You may also be subject to a 3 year Income Payments You need to think carefully about all the affect bankruptcy will have on your home and your employment.
Debt Relief Order yes yes Stopped Tenant Yes – £90 You must have debts under £15,000 and have little in the way of assets

Before we go any further, have you looked at the alternatives?

Let’s be clear. Bankruptcy is not an easy path to go down. You lose your property, access to finance and its can affect also affect other aspects you’re work and personal life. We think it should be seen as a last resort and before you decide to go down this road, do look at two alternatives.

Informal arrangements (Not legally binding)

The first is debt management. Debt management is an informal arrangement between you and your creditors to pay back an affordable monthly amount not your normal monthly repayments plus missed payments plus interest. Normally you can get the interest and charges stopped, and as a way of either buying time to get your finances back on track or paying off all of your debts over many years, it works for many as an alternative to bankruptcy.

There are 3 ways of entering into a informal arrangement:

You propose it to your creditors – there is nothing stopping you, but be aware that you may not have the knowledge or influence of a debt company or charity

Use a charity – Charities like the CCCS are debt management specialists and don’t charge fees for arranging the debt management plan. However, they are funded by your creditors and therefore don’t push for terms that may reduce your debt. Never the less, they are a good and welcome source of help and advice.

Use a company – Like with all things in life, there are good companies and bad companies. Good debt management companies will charge fees as part of the reduced monthly repayments for negotiating and managing the plan. They should also earn that fee by negotiating on your behalf for good terms and a debt settlement amount (a negotiated lump sum settlement to clear the whole debt for a much smaller amount than the total debt owed) at some point in the plans life.

You’ll find more about debt management and a video guide here.

Formal arrangements (Legally binding)

These are better known as IVA’s or Individual Voluntary Arrangements. Essentially it’s a proposal that pay back as much as you can over 5 years and write-off the rest. The amount written off depends on your specific circumstances but 50% – 60% is a typical common amount reported.

An IVA is proposed and managed by an Insolvency Practitioner to your creditors and if agreed is legally binding. We know that there are nearly as many people opt for an IVA as they do bankruptcy. What we don’t know is how many don’t keep up with even the reduced repayments and end up going bankrupt anyway. Also be aware that the companies that arrange and manage IVA’s make a lot of money from them. This money is not directly paid by you, but is paid by your creditors as part of your monthly repayment.

Let’s also be clear that an IVA offers advantages over bankruptcy. Apart from the obvious advantage of having part of your debt written off, the other main advantage is your home is protected, although any equity you have will need to be released.

You’ll find out more about IVA’s and a video explaining more about them here. Please read more about debt management and IVA’s before deciding bankruptcy is your best option.

Is an IVA or Debt Management an option for you?

If you haven’t checked whether these are options you have, get a free confidential assessment of your debts options now:

Click here to visit our debt advice organisations page

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