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Bankruptcy

Bankruptcy is arguably the most well known of all the debt solutions available. It’s possible to enter bankruptcy via two different methods. Typical bankruptcy requires you to attend your local court, whereas a Debt Relief Order is cheaper and you don’t have to go to court.

Bankruptcy is only for people residing in England, Wales or Northern Ireland. If you want to go bankrupt in Scotland you should read about sequestration.

What is Bankruptcy?

Bankruptcy is an insolvency debt solution. It lasts for 1 year, however, it will impact your credit file for 6 years. For many people they believe bankruptcy is the only debt solution available to resolve their money problems. If you enter bankruptcy it may not simply allow you to write your debt off and walk away. That’s why it’s important to get the correct debt advice before entering any debt solution.

If your only income comprises of state benefits then you would not be asked to enter an Income Payment Order (IPO). An IPO can demand that you pay money towards your bankruptcy every month for three years. The exact amount is determined by the official receiver in bankruptcy.

The IPO can also be called an Income Payment Arrangement (IPA).

How Do I Enter a Free Bankruptcy?

To enter bankruptcy, you must attend your local court with the paperwork completed and a payment to submit your application. There is no free bankruptcy service available where you won’t have to pay the bankruptcy court fee. The court application cost for bankruptcy is currently £700. If you are on a low income you could qualify to get a discount (your cost to go bankrupt would become £525).

After submitting your court paperwork, an official receiver will take charge and request any necessary documentation. You must supply the official receiver any information they require. The official receiver will be aiming to understand if you have any disposable income or assets which can be sold for the benefit of your creditors.

Bankruptcy lasts for 1 year, though if you are able to contribute then your payments would last for 3 years. Your credit rating will be affected for 6 years.

When entering bankruptcy you will be asked to complete and submit an income and expenditure. This, along with bank statements, will detail what money is coming into the household and what money is available to be repaid to your creditors. There are guidelines you need to adhere to and certain expenditure that will not be acceptable by the official receiver. That said, if you are on benefits or are unable to contribute, then no payments will be taken.

To get the forms for bankruptcy you should go to your local courts or they can be downloaded from the Insolvency Service website.

When you enter bankruptcy your credit rating will be affected for 6 years and that means getting any future credit within this period of time will be extremely difficult.

What’s The Difference Between Bankruptcy and Debt Relief Order

A debt relief order is another route into bankruptcy, but is a cheaper option. The negatives of bankruptcy remain the same for either route, however, a debt relief order has certain differences.

If you enter a debt relief order you will not have to go to court. Instead a local money adviser can assess your financial situation and grant a debt relief order. The debt relief order costs £90, instead of £700. Once again, a debt relief order will last for 1 year, at the end of this period you will be discharged and your debts will be written off.

To be applicable for a debt relief order you must meet the following criteria:

  • Your unsecured debt (credit cards, personal loans etc) must be less than £15,000
  • You cannot have any assets (e.g. a car) worth more than £300
  • You cannot own your home
  • Your disposable income each month should be £50 or less
  • You must not have entered a debt relief order within the last 6 years. If you’re currently in an IVA or bankruptcy, you cannot enter a debt relief order

Quick Guide: Bankruptcy

Entering bankruptcy will resolve with unsecured debts you are unable to repay. If you’re unable to meet your monthly contractual repayments, have no disposable income each month or have no assets with equity then bankruptcy may be the best option for you.

What are the benefits

  • Once you have entered bankruptcy you will have protection from your creditors
  • The debt will be legally written off at the end of the solution
  • You may not have to make any further payments

What are the negatives

  • Bankruptcy could affect your employment. It’s best to check your employment contract before entering any debt solution
  • Paying the court fee can be difficult if you have financial problems. It’s often best to save this money each month, even if it means failing to pay your creditors. You could even ask you creditors to help make you bankrupt and this may save you the fee.
  • Your credit history will be damaged, with a default lasting on your credit file for 6 years

Top Bankruptcy Tips

  1.  You should have no assets worth over £1000 or a vehicle worth over £3000 to enter bankruptcy.
  2. In bankruptcy you must include all debts, including debts to family and friends.
  3. Always seek professional debt advice before entering bankruptcy.

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