Published in Debt Advice Features on Saturday, November 04 2006

Bankruptcy is a good option for people who are in a position where there is no way in their current financial position that they could ever repay their debts or repay them over a realistic timescale. Bankruptcy is a very serious matter and is largely seen as a last resort option, it is also perceived to be the only way to escape the ever constant demands for payments by creditors. For more information about Bankruptcy and the effects please read more.

Bankruptcy should not be rushed into, there are times when bankruptcy can be very useful, but there are other times when declaring bankruptcy could be one of the biggest mistakes an individual could make.

The restrictions that are put on an individual once they are made bankrupt make it a viable option in extreme cases; this is when a person does not have any money left over after they have covered all their day to day living expenses to pay their debts.

It may be that an Individual Voluntary Arrangement (IVA) could be the better option for severe debt problems, as this is a mutual agreement between the individual and his/her creditors to pay the debt back over a realistic timescale (usually 5 years) at an amount that they can afford each month. An IVA will allow the individual to pay back only what they can afford over the 5 year period, any debt that they cannot afford to repay will be written off by law. The IVA offers much of the relief of bankruptcy without the severe restrictions that bankruptcy imposes.

Bankruptcy involves an individual losing control of any assets of significant value such as a home or vehicle. The individual will lose control of his/her financial affairs, which will be investigated by a stranger known as a trustee. A high level of stigma is attached to bankruptcy and it can be made public knowledge through the local newspapers and insolvency register.

Although there are many restrictions and implications behind bankruptcy it should never be ruled out when deciding on the best route to take when dealing with unmanageable unsecured debts. Bankruptcy/Insolvency is determined by an individual not having enough assets/money to meet all their debts, or being unable to pay their debts when they fall due.

Bankruptcy The Overview

- The individual will have to attend court for their bankruptcy hearing, and will need to prepare to answer questions about their financial circumstances.
- The individuals bankruptcy will normally last for a maximum of 12 months, as long as they carry out their duties as an un-discharged bankrupt
Note: The term of bankruptcy is dependant on the circumstances behind the bankruptcy, this could last longer through restrictions, and in addition the bankruptcy term could be shorter.
-The individuals financial affairs will be transferred to a person who will administer the bankruptcy, and carry out an “investigation into the individuals financial affairs.
- Bankruptcy will restrict an individual from obtaining credit of over 500 without disclosing that they are bankrupt.
Note: - This is seen as a criminal offence and is not just borrowing money, it includes getting credit as a result of conduct which is designed to get credit even though a specific agreement has been made (e.g. Ordering goods without asking for credit and failing to pay for them when they are delivered)
- Bankruptcy restricts an individual from running a limited company it is seen as criminal offence, whether it involves promoting, forming or managing a limited company, or acting as a company director, without the courts permission, whether formally appointed as a director or not.
- Restricts an individual from holding certain public office positions, such as MP, Local Government etc.

As already mentioned bankruptcy should not be rushed into and if you are considering taking the bankruptcy route you should always seek debt advice.