Dealing With Debts, Options Explained

g) Bankruptcy

Bankruptcy can be the best option for dealing with debts and can allow the debtor to make a genuine fresh start with their lives. It is a perfectly legitimate way of dealing with debts and no longer seems to have the stigma attached it once was perceived to have with many people now taking this option.

How are you made bankrupt?

voluntary - the debtor petitions themselves at their local court
involuntary - by a creditor owed £750 or more
the supervisor or anyone bound by an IVA

How much does bankruptcy cost?

£450 - official receivers fees (no exemptions, everybody has to pay these)
£150 - court costs (these may be fully or partially waived depending on benefits / income)

There are numerous charities that may be able to assist with bankruptcy fees & costs including the Severn Trent Trust Fund & the Royal British Legion

Some pros

genuine fresh start with debts legally written off
allowed a reasonable amount of money to live on
no longer have the stress and worry of dealing with creditors and their agents
usually allowed to keep all essential household goods
in some cases allowed to keep vehicles (cars) if they are needed or employment or health / disability reasons (eg DLA mobility scheme)
some cases able to keep the home (eg negative & small equity / third party equity purchase)
discharged after one year or as little as 6 months (early discharge)

Some cons

home & any valuable assets could be at serious risk of being sold to raise equity or monies
risk to employment in certain professions (check contract of employment)
some tenancy agreements may include an insolvency clause (risk to home)
bankruptcy details are entered on the Insolvency service public register and in the national press (London Gazette) & possibly local paper
if the bankrupt owns a business / ltd company it could be closed down / employees dismissed / assets sold off
may be subject to an income payment arrangement (IPA) or order(IPO) lasting 3 years
may be subject to a restriction undertaking(BRU) or order (BRO)
certain debts cannot be included - fines / CSA / criminal injury / student loans
unable to obtain credit of more than £500 / credit rating affected for 6 years

Please note there are advantages, disadvantages and possible serious implications with bankruptcy and other dealing with debts options mentioned in this guide. We would always strongly advise that you seek full in depth advice from the CAB or an alternative agency before making any decisions.

Also, see our Basic Bankruptcy Guide for further information.

Useful links

Insolvency Service
0845 602 9848
Bankruptcy Advice and Support Forum - Money Saving Expert

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