"Bankruptcy is one of the best known debt solutions, but is it the right solution for me?"
We all want to ensure we receive the best debt advice so we can make informed decisions. There are a number of different debt solutions available across the UK. By understanding each debt solution you're able to make a decision on how you wish to become debt free.
Bankruptcy is one of the most well-known debt solutions. As a result, many people think they are bankrupt when they call our charity. However, that's not always the only option. Most people have two or three debt solutions which they could enter to resolve debt problems. And, in other cases we tell people that bankruptcy is not the right solution for them.
Is Bankruptcy Right For Me?
Bankruptcy is a solution to debt and money problems. But, many people enter the solution unaware of the consequences.
When creditors are sending letters almost every day, the telephone won't ringing with creditors wanting their money back and you have no idea how to pay them, then the common response is, "just make me bankrupt".
However, that's not always the best choice.
For instance, is it a short term problem, like being unemployed for a few months? Do you have an asset which has equity in it? Is the interest and charges the problem? These are all factors which will determine whether bankruptcy is the best advice for you.
5 Things You May Not Know About Bankruptcy
1. Usually bankruptcy costs to enter the solution
Bankruptcy costs between £90 and £700 to enter, per person. This is a fee you have to pay so you may have to save up money.
2. Bankruptcy lasts 1 year but you could be asked to pay for 3 years
Being bankrupt lasts for 1 year and then you are discharged. However, if you can afford to pay something towards your bankruptcy then you will be asked to do so.
3. Bankruptcy will last on your credit file for 6 years
Even after you've completed your bankruptcy your credit file will be impaired for at least 6 years.
4. Your assets are reviewed in bankruptcy
If you have a property or a car then there will be a valuation carried out to determine if there is any equity. In bankruptcy, only your share of the equity can be taken for the benefit of your creditors. So if it's a joint property the other owner would keep their share of any equity.
5. Bankruptcy can affect your employment
It's imperative to check your contract of employment before you enter bankruptcy. Some employers will dismiss their employees who enter bankruptcy.
What Route Into Bankruptcy Should I choose?
There are various ways to enter bankruptcy. The right route matters because there is a cost involved. Furthermore, bankruptcy is different in England, Wales and Northern Ireland compared to Scotland.
England, Wales and Northern Ireland
Creditor bankruptcy: A creditor can make you bankrupt. This means you don't have to pay the fees to enter bankruptcy, however if you have an asset with equity then you may lose this.
DRO: A Debt Relief Order costs £90 and is for specific people who can't afford to repay their debt. You have to meet the strict criteria, such as the debt must be below £15,000.
Court bankruptcy: If you don't qualify for a DRO you will have to visit your local county court and submit bankruptcy papers. This costs £700. If you are unemployed or earn a low income, then this fee can be reduced to £525.
Creditor Sequestration: Your creditor can petition for your own bankruptcy. This means you avoid the bankruptcy costs, but your assets will be considered in the bankruptcy solution.
Minimal Asset Process: If you meet the criteria you could apply for the MAP route to bankruptcy in Scotland for £90.
Certificate of Sequestration: Bankruptcy via a Certificate of Sequestration costs £200 and is applied for when the MAP route is not suitable.