When to Declare Bankruptcy

The Hows, Whens and Whys of Declaring Bankruptcy

Bankruptcy is one of the options that could help you if you are weighed down by debt. However, the right circumstances to declare bankruptcy might not be as often as you think. When you are stuck in the debt cycle trying to pay off accumulating interest from payday and short-term loans, bankruptcy might seem like an oasis in a desert. While it might help you to deal with your debts, it also has long-term consequences.

Bankruptcy affects your credit report. It makes it difficult to take out any credit for the next six years. It’s a step that you should take with caution. You should only do it after understanding the advantages and disadvantages. Declaring bankruptcy isn’t suitable for everyone with debt or struggling to make payments. Before you decide if it’s for you, it’s essential to understand what bankruptcy means.

Understanding Bankruptcy

Before you can know if bankruptcy is right for you, you need to understand what bankruptcy is. Many people know the word, but they’re unsure of what exactly the process entails. For individuals who are unaware of its implications, it might seem like a magic word that makes debts disappear. However, bankruptcy is more complicated than that. Bankruptcy can be a solution when you’re struggling to pay off your debts. It’s important to be aware of which debts bankruptcy can write off, and which ones it will remain. For example, some that won’t be written off include magistrates’ court fines, student loans, and secured loans.

Bankruptcy also does not always mean that you won’t have to pay towards your debts. Depending on your income, you might be asked to make payments for three years. It can also mean that you will have to sell some possessions, including your car. Bankruptcy typically ends after a year, but it stays on your credit report for six. You can also have a bankruptcy restriction order for up to 15 years, which can restrict your finances. Bankruptcy also isn’t only something you file for yourself. One of your creditors can also apply to make you bankrupt, whether you want them to or not.

There are several advantages to bankruptcy if you’re struggling to pay debts. To get rid of creditors chasing after you can be a huge relief. After you have been made bankrupt, creditors need to drop any court cases if they want to get their money although they might claim some of your possessions. But there are things you can keep, such as money for your household budget and everyday goods. Anything left that you owe could be written off, depending on your circumstances.

However, there are many disadvantages you need to consider before you become bankrupt. Firstly, there is no guarantee that all your debts will be written off. Some types of debt are exempt, and if you have a higher income, you will have to make payments for several years. Bankruptcy can also mean you lose your possessions, which could include your home. Your mortgage lender can repossess your property. You might lose your car and other luxury items. Bankruptcy may affect you for many years, making it harder to take out credit. It could have an impact on your business, your job, or your immigration status.

Your bankruptcy will be made public unless you or your family may be at risk of violence. Your pension savings could even be taken if you have reached or are nearly at retirement age. Additionally, you may not know that there is a fee of £680 for filing for bankruptcy.

The Right Circumstances to Declare Bankruptcy

Understanding whether bankruptcy is right for you can be difficult. You should seek advice from Citizens Advice, National Debtline, and other organisations. Every person’s situation is different, so it’s advisable to get individual advice. If you’re struggling to find a way to pay your debts, bankruptcy may be the right choice for you. If you don’t have many valuable belongings, and there is little equity in your home, bankruptcy is worth considering. You should think about whether your situation might improve soon.

If you can see no end in sight to your money troubles, you might need to declare bankruptcy. There is no minimum amount of debt you need to owe. But bankruptcy might not be the right choice if your assets are worth more than your unsecured debt. If a creditor wants to make you bankrupt, you need to owe at least £5,000. However, it’s important to consider other options too.

Although there are no set limits on when you can declare bankruptcy, it’s important not to do it too hastily. Citizens Advice recommends that you don’t become bankrupt if you owe less than £20,000. Your belongings shouldn’t be worth more than £1,000. Declaring bankruptcy for smaller debts would be fairly hasty. You may have better luck with other options. If you work in some professions, bankruptcy may mean you can no longer be a member of your professional association. These professions include lawyers, estate agents, and accountants. You might also be reluctant to let your finances be public knowledge. They most likely will be if you declare bankruptcy.

Alternatives to Bankruptcy

Before declaring bankruptcy, you should make yourself aware of the alternatives available to you. These include a debt relief order, administration order, or individual voluntary arrangement. A debt relief order is suitable if you owe less than £20,000. You should also be unable to pay much towards your debts, and not be a homeowner. With one, your creditors can only recover debt with permission from the court. Your debts usually will be discharged after 12 months. An administration order is for debts of under £5,000 if you have a county court or High Court judgment. It involves paying monthly to the court. It then will distribute the money among your creditors. With an individual voluntary arrangement, you pay to an insolvency practitioner. They will do the same thing, distributing the money to creditors. You can find out if any of these options are right for you by speaking to a debt adviser.

Bankruptcy may be the right choice for some people struggling with debt. However, it isn’t right for everyone. Understanding all of your options is essential, so speak to a debt advice service for help.