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Bankruptcy: A Concise Guide

by Benedict Rohan


Definition of bankruptcy:

Bankruptcy is one method of getting out of debt. It is a court order that transfers
responsibility for dealing with creditors to the Official Receiver, who
also takes control of the debtor's money and assets and distributes
them fairly to all their creditors. Once all debts have been paid or
written off or an agreement reached, the individual is able to make a
fresh financial start.

A bankruptcy order is granted by the court when it receives a petition
(application) from either the debtor or one or more of their creditors
if the amount owed is more than £750 in unsecured debt.

Bankruptcy has its advantages and disadvantages although it's an
extreme measure and should be considered very carefully. Just because
you're in a lot of debt, it doesn't mean that bankruptcy is your only
option. You'll need to speak to a financial expert who'll advise on the
best course of action for you. Some useful sources of help are the
Citizen's Advice Bureau, the government Insolvency Service, the
National Debtline or the Consumer Credit Counselling Service.

Advantages of bankruptcy:

  • your creditors will be dealt with by the receiver

  • court action against you to recover money may be stopped

  • your debts may be written off

  • you'll be allowed to keep a certain amount of money and household
    items to give you a reasonable standard of living

  • you'll be able to make a fresh start when the bankruptcy order
    has been cancelled

  • Disadvantages of bankruptcy:

  • you may have to pay a court fee of up to £475 for the
    bankruptcy order

  • not all debts can be written off - e.g. court fines

  • your details will be entered onto a public register of bankrupt
    individuals so other people will find out about it

  • you won't be able to apply for any more credit while the
    bankruptcy order is in force

  • you may lose your home or any luxury possessions that you own if
    they have to be sold to repay your debts

  • if you own a business, it may be closed down and the assets sold

  • you could lose your job depending on your employer and what
    profession you work in - some don't allow individuals who become
    bankrupt to continue working

  • you may be subject to a bankruptcy restriction order, which can
    make it very difficult to take out credit or other financial products

  • homeowner loans in the future - this might happen if you have been reckless with your
    finances or have been dishonest or uncooperative with the Official Receiver

  • Petitioning for bankruptcy:

    Bankruptcy orders are arranged by your local court. You'll need to fill
    out a couple of forms - a petition and a state of affairs, which can be
    obtained from your local court or from the government's Insolvency
    Service website ( You'll need to list all your
    debtors and all your assets - from bank accounts to valuable
    possessions. It's a criminal offence to make a false statement on these
    forms, so you must be truthful. It's also illegal to sell any items
    before the bankruptcy order or to hide any goods that you own.

    The court will review your case and will only grant you a bankruptcy
    order if it feels that you have no other means of solving your debt
    problems. Once the order is in place, your accounts and assets will be
    frozen and the Official Receiver will investigate your finances. First
    they will interview you. Then they'll give notice of your bankruptcy
    order to various bodies, such as your local authority, sheriff court,
    land registry, utility companies, banks, insurance companies, landlords
    and solicitors, in order to determine what debts you owe and what
    assets you have. Once the Official Receiver has compiled a
    comprehensive report on your finances, a copy will be sent to all your
    creditors and your assets divided equally among them.

    You'll normally be discharged from your bankruptcy order within a year,
    by which time your debts will either have been paid back or written off.

    Alternatives to bankruptcy:

    If your debts haven't gone too far down the line, it may be possible to
    come to an informal arrangement with your creditors that will allow you
    to repay your debt in a manageable way. You can try to negotiate a
    repayment plan in which you make your repayments in affordable regular
    instalments. It may cost you more in interest in the long term, but it
    could be a more viable option than bankruptcy.

    If this doesn't work, a formal, legally binding arrangement called an
    Individual Voluntary Arrangement may be able to be set up with your
    creditor. You'll need the services of an insolvency practitioner to
    arrange this.

    Alternatively, insolvency practitioners also offer debt management plans, in
    which they take on management of your debts for a fee.

    If one or more creditors has obtained a county court judgement against
    you and the total owed is less than £5,000, you may be able to
    apply for an administration order at your local court, under which your
    repayments to your creditor are made via the court, which takes a
    portion of the repayment for administering the repayments.

    Information About The Author

    Biography: Author: Benedict Rohan Website: Benedict Rohan works as a freelance finance writer. Commercial Mortgage, Homeowner Loans, Remortgages

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    Additional Bankruptcy Articles

    Bankruptcy and Your Business
    Bankruptcy for your business can be a traumatic event. However, it can become necessary, and at a certain point there is a need to move on in your economic life, just like it can become necessary in your personal life.

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