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What is Bankruptcy?

What is Bankruptcy?

Many people are facing money problems, but just how bad do they have to be before you consider bankruptcy, and what does it mean to be bankrupt?

Final Resort

When a person is unable to pay back their debts, it may not seem so bad at first – perhaps one or two late bills.  But when the level of debt escalates so far out of control that creditors are knocking on the door and life is hard to manage, bankruptcy can be a final resort.

How do you become Bankrupt?

You can become bankrupt yourself voluntarily, by creditors who are owed more than £750 or after you are bound to an IVA (Individual Voluntary Agreement).

By becoming bankrupt, you allow your assets to be shared out fairly among your creditors and can contemplate a new start.  A court will make an official bankruptcy order against you (at either your request or at your creditor’s request). 

What Happens Next?

Your assets will then be taken under the control of a Trustee (an official appointed by the Court or a licensed Insolvency Practitioner).  That person’s job involves working out how much your assets are worth, what can be paid back where – all within certain guidelines.

Once you have received a bankruptcy order, your creditors can no longer chase you for payments – paying the debts back has now become the responsibility of the Trustee.

Pros and Cons

By becoming bankrupt, you are able to contemplate a better financial future but there are some downsides: your chances of getting credit will be very limited for some time, you lose control of your assets, there are some jobs which you cannot take on from now on (such as Chartered Accountant, Lawyer, Local Authority, Justice of the Peace, MP).

Consider an IVA before Bankruptcy

Before you consider bankruptcy, think about getting an IVA – a legally binding agreement that is made between you and your creditors to pay back your debts at a reduced monthly rate.  Interest is frozen and you gain a more manageable way to deal with debt.  Look at companies offering IVAs on Bad Credit Good Solutions.