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On many occasions we’ve encountered people who say that bankruptcy is the “easy way out” of debt.
Some people think that bankruptcy wipes off 100% of debt, and you can be completely debt free within 12 months. Unfortunately this isn’t always the case and, therefore, bankruptcy should never be viewed as the easy way out. Bankruptcy is a form of insolvency and is one of the many options available to people who are in financial difficulty. Contrary to the belief of some bankruptcy is a complex, and sometimes difficult, solution to your financial problems.
It currently costs £680 to file for bankruptcy. Once a bankruptcy petition is filed an Official Receiver is assigned who will go through a person’s finances, assets and debts. If there are valuable assets such as a house, motor-home, jewellery or a car then they will look at selling them in order to pass the funds to the creditors.
As well as assessing assets, the Official Receiver will look at income and expenditure; if a person has a surplus left once they have accounted for all of their monthly outgoings then they could be requested to pay what is called an Income Payments Order (IPO). An IPO is where a person pays any surplus income towards their bankruptcy for a set period of time, usually three years. This disproves the idea that bankruptcy is the ‘easy way out of debt’ as a considerable amount of your belongings may be sold to recover some of the funds you owe. What’s more, you won’t be debt-free after 12 months due to the potential of paying an income payments order for three years after your bankruptcy period is over.
In addition, Bankruptcy will normally remain on a person’s credit file for six years from the date they were made bankrupt. This means it may be harder for you to get good deals on any credit you want to borrow, although having said this, there are steps you can take to rebuild your credit score after bankruptcy.
If you are looking into bankruptcy you may be able to get help with the fees.