Ever wondered what happens when you become bankrupt in the UK? If yes, look no further. If you’re facing debt problems, you may be thinking of filing for bankruptcy. However, it’s important to understand what bankruptcy is, your alternatives, the procedure, etc. You must, however, understand that; filing for bankruptcy doesn’t mean you are a failure. Bankruptcy is a great way to protect yourself when you are unable to meet your debt repayment obligations. Many people have filed for bankruptcy including Donald Trump and come out of debt stronger financially. In a nutshell, there is nothing to be ashamed of about bankruptcy. However, you need to understand bankruptcy for it to work in your favour. Let’s start with the definition.
What is bankruptcy?
Bankruptcy can be defined as a legal procedure that relieves a debtor of the liabilities of their debt/s by making legally approved arrangements for partial payment of the debt. When you become bankrupt in the UK or any other place in the world, your non-essential assets i.e. possessions, property as well as your excess income is used to pay your debts and most debt is discharged or canceled at the end of the bankruptcy period which is usually one year.
You can apply for bankruptcy when you are unable to repay your debts. It costs £680 to apply for bankruptcy in the UK, and you can only apply online (https://www.gov.uk/apply-for-bankruptcy). The online application process is simple. You simply need to provide basic information about yourself i.e. your income, expenses, and debts. You need to create an a/c to which you will submit the required information i.e. your wage slips, benefits statements, bills, etc. You can only submit your application after paying the bankruptcy fee in full.
It is, however, possible to request for installment payments if you can’t be able to pay the full fee at once. In case you need further assistance filing for bankruptcy, you should consult a debt adviser. It’s also worth noting that you can’t apply for bankruptcy (make yourself bankrupt) in the UK if you are a Scotland or Northern Ireland resident.
In cases where an adjudicator declares you bankrupt because other parties i.e. your creditors have requested that you be declared bankrupt, you will receive a bankruptcy order. You may also be interviewed.
What happens when you are declared bankrupt?
After being declared bankrupt, your assets may be used to settle your debts. You also become subject to UK bankruptcy restrictions. For instance, you can’t be able to borrow more than £500 without disclosing you are bankrupt to your lender. Also, you can’t work as an authorised debt specialist, a company director, form, manage or promote any company or manage any business without seeking the court’s permission.
When you are declared bankrupt, your name among other details i.e. address are published in the IIR (Individual Insolvency Register). You can, however, request for your address to be removed from the register if it exposes you to security risks.
Bankruptcy professionals: The role of official receivers and Insolvency practitioners
When you are declared bankrupt, an official receiver will be appointed to handle your bankruptcy affairs i.e. protect your assets or act as a trustee if you don’t have assets. If you have assets, an insolvency practitioner is appointed to sell your assets and act as a trustee.
How will bankruptcy affect you? Main advantages and disadvantages of bankruptcy in the UK
Advantages of being bankrupt
Being declared bankrupt has some advantages. The main advantages include;
1. You get a chance to start afresh after the bankruptcy period ends which is usually after 1 year.
2. Declaring bankrupt reduces the pressure of having to deal with creditors
3. You get to keep essentials i.e. household goods as well as a reasonable amount of money for catering for living expenses.
4. Your creditors are forced to stop most/if not all court actions against you aimed at getting their money back.
5. The debt is usually written off after the bankruptcy period is over.
Disadvantages of being bankrupt
1. You need to pay a bankruptcy fee of £680
2. The bankruptcy period can be extended to 3 years if you have a high income
3. Your credit rating/score/history is affected for 6 years.
4. It is harder and more expensive to get loans.
5. Your possessions/property i.e. your home, car/s, etc. can be sold to repay your debts. Your pension savings can also be taken.
6. You may not get certain jobs in the UK if you are bankrupt or have been declared bankrupt before.
7. Your bankruptcy is published publicly which may introduce security risks and/or result in other problems i.e. victimisation etc.
Although bankruptcy is a viable option when you are unable to repay your debts, it’s important to think of the repercussions of filing for bankruptcy. Understanding bankruptcy is highly recommended before you decide to file. It’s also advisable to seek professional help. Ideally, bankruptcy should be considered as a last resort.