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Bankruptcy – should I consider this option?

If you’ve reached the stage where bankruptcy seems to be the only way out of the debt problems you’re facing and you’ve considered all other options such as an Individual Voluntary arrangement or IVA, there’s no need to despair. For some people bankruptcy can mean moving on more quickly than if they tried to battle on with their debts. Although the number of people going bankrupt is on the increase, it’s also true that many avoid this solution when in fact it’s suitable for them in their circumstances.

Assuming your creditors agree to your proposal (75% by value of debt must vote in favour of it), interest and charges will be frozen and you and your home will be legally protected from any further enforcement action by your creditors.

What does going bankrupt actually mean for you?

Bankruptcy is a serious step, there’s no point in avoiding facing the facts. What happens when you declare yourself bankrupt, or you’re forced into bankruptcy by someone you owe money to, is to give someone else – an official receiver or trustee appointed by the court, control over your money.

You’ll hand over all your assets and the receiver will decide what you can keep and what has to be sold in order to pay off your debts. You can typically keep some possessions, such as your car, particularly if you need it for work and essentials such as clothing, household goods, furniture and bedding etc.

You can carry on working and can continue trading if you’re self-employed, although you’re not allowed to be a company director while you’re bankrupt.

Are there Debts that aren’t covered by bankruptcy?

Whilst bankruptcy can help to make your serious debts a thing of the past, there are some that you’ll still have to pay throughout your bankruptcy – and possibly beyond. These include maintenance payments, court fines and student loans.

So how does the bankruptcy process work?

You can either get the paperwork you need to declare yourself bankrupt from the government’s insolvency service website or you can ring the courts directly yourself. At the time of writing it costs £700 to go bankrupt which is made up of a £525 deposit and a £175 court fee.

It’s wise to expect an awful lot of form filling at this stage and many questions are aimed at people who run their own business, so try to take your time and not be overwhelmed by all the information that’s being requested. If you’re using the Government Insolvency Service website, you can ask questions when you’re online.

You’ll need to telephone the court to arrange to be seen and remember to take your paperwork and deposit with you. You’ll be met by the clerk of the courts who will ask you to swear an oath that what you’ve said on the form is true. Assuming all the paperwork is in order, the district judge will then declare you bankrupt, which can be done in your absence.

You can be reassured that you don’t need to worry about facing your creditors in court – you won’t meet them. Your court appointment is likely to be before or after the court deals with the cases of the day so you won’t be treated as a criminal. Bankruptcy is a way to deal with a debt problem – it’s certainly not a punishment.

What happens after bankruptcy?

After you’ve been declared bankrupt, you’ll get a call from the official receiver, who works for the Government Insolvency Service. They’ll talk you through the numbers you’ve provided in your budget and your list of assets together with their value.

You’ll then need to close down your current bank account. You can open another bank account just as long as long as you’ve told the bank that you’re a bankrupt and you’ll be allowed to have a basic bank account only. Currently Barclays offers a basic bank account to new customers who are made bankrupt. The Co-operative bank stopped offering accounts for new customers in September 2012. Other online banks are available, but they may be less well known and so you should tread carefully.

Hopefully you’ll find this information helpful, but do remember that whilst there’s plenty of good advice here for you to consider, if you are feeling that bankruptcy is the right step for you at this time, it’s important to get in touch with a trusted charity debt advisor such as The Debt Advice Foundationwhose experts will advise you on the best way forward based on your personal circumstances.

If you have debts of under £15,000 you should find out more about Debt Relief Orders as it may be a better, cheaper and faster way of solving your debt problem.

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