The Truth About Bankruptcy
Mrs Jacobs, Exeter
"Bankruptcy really scared me but you were always there to reassure me and answer any questions. Four months later I know it was the right choice."
Unlike 30 or 40 years ago, bankruptcy no longer has the same stigma and shame attached to it. In fact, this method of clearing debt is now mainstream (135,000 people were declared insolvent in 2010 alone) and increasingly popular. Celebrities such as Kerry Katona have shown that it is an effective way to make a fresh start and is not to be feared.
The process of bankruptcy is now less intrusive and particularly if you have no assets (e.g. a home or expensive car) it should be given serious consideration.
How bankruptcy works:
- If you owe a creditor £750 or more then they are entitled to petition for your bankruptcy. Most companies rarely go down this route and instead it is more common for people to declare themselves bankrupt. To do this you need to apply to your local bankruptcy court (by calling 0800 084 2885 we can tell you where this is) and pay the associated fees. A £150 court fee currently applies and a deposit of £450 must also be paid. If you are in receipt of benefits these fees may be reduced.
- When the court declares you bankrupt an official receiver is appointed and your assets (possessions, income etc) can be used to pay off your debts. Your finances will be examined (you will need to complete a detailed statement of affairs) and if you have sufficient equity in your home then it could be at risk. The official receiver is likely to look at your property closely but will also see if you have sufficient income to make an attachment if earnings. This means that a fixed amount will be taken from you wages each month to pay towards your debts. Your employer will be contacted to arrange for this payment to be made.
- Whilst this is a daunting prospect it is worth remembering that if you are in receipt of benefits an attachment of earnings is extremely unlikely (benefits are paid by the government to ensure basic living standards and care are maintained) and if you have children in your home, or you partner owns some of it, an eviction is also less likely.
- Bankruptcy normally lasts 12 months (sometimes shorter these days) and at that point you are discharged and are debt free. However if you have not co-operated with the official receiver then bankruptcy restrictions can last much longer and any attachment of earnings will normally last for 3 years.
Bankruptcy remains a big decision (it will have a huge impact on your credit file and will be advertised in your local newspaper) and particularly if you are working or own your own home you will need to get expert advice. It is worth noting that some occupations do not allow you to go bankrupt or frown upon it. At Debt Trust Direct we are experts in bankruptcy and can tell you if it is your best option.
The summary above does not cover every aspect of bankruptcy so why not try our free 60 second test and find out if it is the best way to clear your debt.
Debt Relief Orders
In 2009 Debt Relief Orders (DRO) were introduced and as an alternative to full bankruptcy. It is a similar process (and still administered through an official receiver) but at £90 they are far more affordable and could be a better option if you have a deposable income of less than £50 a month and assets under £300. A DRO cuts out much of the red tape and also means you will not have to go to court. Not everybody will qualify for a DRO and by calling 0800 084 2885 we will be able to tell you if this is an option.
