About Bankruptcy

When your debts start becoming a problem, many people think that the only way to turn is being declared bankrupt. This is not always the fact as there are several options open to you and bankruptcy is usually a last resort to resolving your debt issues.

Bankruptcy is a legal status that usually lasts for a year and can be a way of clearing debts you can't pay but it does mean that most of your assets, including your house, can be dissolved to par off your creditors. Also when you become bankrupt you also agree to stop using credit cards and not obtain credit of over £500 without informing the creditor that you are bankrupt. You might also be ordered to maintain monthly payments on the debts for three years. Other restrictions imposed from becoming bankrupt include:

• You may not be able to hold certain occupations and professions, such as the Police Force, Armed Forces, Local Council and Government Offices. Many corporate employers carry out background searches - this could also mean that promotion prospects could be affected.
• You will be unable to act as the director of a company.
• You cannot take any part in the promotion, formation or management of a limited company without the permission of the court.
• You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
• There may be restrictions on you practicing as an Accountant / Solicitor.
• If a Bankruptcy Restriction Order is granted:
• You cannot become a Member of Parliament.
• You cannot act as a Justice of the Peace (JP) or Governor of a School.
• You cannot become a member of the Local Authority.
• The bankruptcy order remains on your credit reference file for six years.
• Any member of your family or even your employer could be publicly examined in court if the Official Receiver believes this will aid the investigation.

Alternatives to Bankruptcy

There are other alternatives to Bankruptcy and it may be better for both you and your creditors for you to choose one of these alternatives.

Debt Management

Debt Management is an excellent way to get control of your finances. It involves letting a third party to take control of your debts, negotiate with your creditors to agree reduced payments and freeze interest, and to give you a single affordable monthly payment in which they will evenly disperse between your creditors. More information on Debt Management...

IVAs

IVA stands for an Individual Voluntary Arrangement and it is a legally binding arrangement between you ("the debtor"), and your creditor (the company to whom you are in debt). The intention of an IVA is to reach a compromise with your creditor in order for you to avoid bankruptcy and for your creditors to recoup more of the debt than they would be able to if you were declared bankrupt. This usually means paying a high monthly installment over three to five years and the rest of the debts are written off.

Advantages of an IVA over Bankruptcy include you having more say as to how your assets are distributed amongst your creditors and you may also be able to persuade your creditors to allow you to keep key assets like your home. You avoid many of the restrictions that Bankruptcy imposes on you such as the impositions on certain professions and also IVAs are not published in the newspaper so they remain a more private affair. More information on IVAs...

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