Bankruptcy is a pretty familiar term and one that most people have an understanding of. We hear of people with little in the way or regular income becoming bankrupt and we hear of celebrities who have earned millions being forced into bankruptcy. Debt and the mismanagement of finances is a problem for people across the whole of society and when it goes badly wrong, bankruptcy is the option many people choose.
What actually is bankruptcy?
Bankruptcy is a formal and legal debt solution that enables people with serious debt problems to write of a proportion or all of their unsecured debt. It is the last resort solution where all others are deemed insufficient to solve the problem. In order to apply for bankruptcy you must be insolvent which basically means that you owe more than the value of your assets, savings and cash reserves.
So what does it all mean in real terms?
In real terms it means that your debts are so bad you have no chance of paying them back. You will usually have to agree to make some kind of contribution to them which is usually over a period of five years and your creditors in turn have to agree to the balance being written off. It means that you pass over control of your assets to the Trustee who is responsible for legally administering your bankruptcy case and he will decide whether they are sold to pay off your debts or not.
By agreeing to a contribution to your debts each month you are effectively agreeing to live on an agreed amount which by its nature is always going to be restrictive. You are not allowed to take on additional credit during your bankruptcy and your credit rating will be affected for six years at least. If you are a homeowner there is a possibility you could lose your home and in fact this is likely to apply to any other assets of high value you own. There are also restrictions in terms of employment and the running of a business as some professions do not allow people who have been made bankrupt to continue in employment and you may not be able to operate as a company director.
There are positive aspects to filing for personal bankruptcy such as the fact that it is a definitive solution that enables you to clear your debt and make a fresh start. Any payments that you agree to make must be affordable to you and you are actually discharged from bankruptcy after twelve months. Your creditors are no longer allowed to chase you for money or take legal action against you and so the stress and worry associated with this part of being in debt will stop. Your trustee will deal with your creditors and administer the process on your behalf. As long as you abide by the terms of your bankruptcy you will be debt free at the end of it and able to make a clean financial start.
Take professional advice
Bankruptcy is a serious decision and you need to ensure it is the right decision for you. The best course of action if you are considering making yourself bankrupt is to seek professional debt advice. An experienced debt advisor will be able to objectively assess your circumstances and advise on the best options to resolve your debt problems.