A first time bankrupt will usually be discharged about a year after the date of the bankruptcy order. Often it is a very positive option for anyone facing insurmountable debt, despite the social stigma which has often been attached to it. A similar alternative is an IVA (Indididual voluntary arrangement). This should also be considered when looking at the possibility of bankruptcy.
Bankruptcy is an option which can free you of debts you are unable to pay and share out your assets among your creditors.
The implications of going bankrupt
- You will lose control of all your assets
- You will find it more difficult to obtain credit and must declare your bankruptcy to lenders
- You will have certain employment restrictions, e.g you cannot become a company director, a member of parliament, or a Chartered Accountant or Lawyer.
- You will be publicly examined in court and your bankruptcy will be publicly announced.
- Your credit will be affected for many years to come and you may have problems applying for a mortgage.
On the positive side bankruptcy offers a solution to overwhelming debts which cannot be paid. You can be discharged within a year, sometimes sooner. It gives you the opportunity for a fresh start in life. For your creditors it allows them to have a full investigation into your monetary affairs and to see your situation fully.
How do you become bankrupt?
A person can choose to become bankrupt themselves (voluntary bankruptcy), their creditor can petition a bankruptcy order against the individual (involuntary bankruptcy) or someone can be made bankrupt by a person who is bound by an individual voluntary arrangement (IVA).
If a bankruptcy petition is made against you, you should cooperate fully as a bankruptcy order can still be made against you even if you dispute the petition. If you dispute the claim you should arrange a settlement before the petition is due to be heard in court. Otherwise it is difficult and expensive to organise a settlement after the bankruptcy order is finalised.
In the majority of cases, bankruptcy is filed by the debtor (voluntary bankruptcy). Often people considering bankruptcy opt for an IVA instead.
IVA’s
An IVA or individual voluntary arrangement is a legally binding agreement between you and your creditors which provides both parties with legal protections while you sort out your debts. To be eligible for a IVA you must:
- Have 3 or more creditors and over £15000 worth of unsecured debt
- Be having difficulty making payments
- Be able to show proof of employment
- Be a UK citizen (specific IVA England and Wales)