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Bankruptcy is a debt solution that should never be taken lightly, and should only be undertaken following professional advice. However, sometimes it can be taken out of your control. We’re here to tell you what it is and how you can go about being declared bankrupt.
What is bankruptcy?
Bankruptcy is a debt solution that can allow you to make a fresh start with your finances and write off most of the unsecured debts you owe. Once you are declared bankrupt, assets of value will be sold to raise money and pay as much back to your creditors as possible.
How can you be made bankrupt?
You can either be forced into bankruptcy, or you can apply for it yourself.
To be forced into bankruptcy, you must owe a minimum of £5,000. A lender may resort to this if you are not paying your debts in time or ignoring their communications (letters, phone calls and emails). The lender will petition the Court for your bankruptcy.
If you’re in an Individual Voluntary Arrangement (IVA) and have broken the terms of it, then it may be failed and your creditors may decide, to petition for your bankruptcy. If you’re falling behind on your IVA repayments, speak with your Insolvency Practitioner.
You can apply to be made bankrupt but we advise you speak to a debt adviser to make sure that this is the best option for you. You may choose bankruptcy to make a fresh start and to declare to your lenders that you can no longer repay your debts. You will need to be aware of the costs involved and risk of losing assets by going bankrupt.
Does it cost money to go bankrupt?
It does cost money to apply for bankruptcy but you may be able to pay this in instalments if you cannot afford the £680 fee. You will need to pay the full fee before your bankruptcy application is approved.
What happens after bankruptcy is declared?
After your bankruptcy application has been processed, an Official Receiver will soon be appointed to your case. Your income, outgoings and assets will be looked at to decide how these can be used to repay your existing debts. You may be invited to attend an interview with the Official Receiver to discuss your situation.
The creditors included in your bankruptcy can make a formal claim for the money they are owed but they cannot ask you directly for payments. You will also not be permitted to make payments to them during this time.
Once you are discharged from bankruptcy which is usually after a year, the debts included in your bankruptcy will be written off. You will find it difficult to obtain credit during the time your bankruptcy is on your credit file as lenders will see you as a risk. Bankruptcy will remain on your credit file for 6 years after it starts and you will have to wait until the bankruptcy has been removed from your credit file before you can build up a good credit score again.
What do you need to bear in mind?
You will need to be aware that your assets can be at risk after you’ve declared bankruptcy. If your home has equity in it, it may be sold to release equity to pay your creditors. The same applies to other possessions, like a car.
Need debt advice?
As previously mentioned, you should never enter into bankruptcy – or any debt solution, for that matter – without seeking professional advice. Our advisers are here to help and they will be happy to talk to you about your financial situation. Get in touch today by calling 0800 280 2816.