About Bankruptcy

Consider the positive aspects of bankruptcy

In years gone by bankruptcy carried a stigma with it. That has now gone to a very great extent as tens of thousands of people each year in the UK declare personal bankruptcy.

Strangely for those in financial distress there is a considerable cost to declaring oneself bankrupt. The court fee is £150 and the Official Receivers Deposit is £310. This is a huge amount of money for those who may have little or no income.

That being said, there is a benefit straight away to going bankrupt, because as soon as the order is made, the debts fall away.

Under usual circumstances a bankruptcy order will last only a year. If there has been complicity in losses, then the Official Receiver can make an application to court to extend the time before discharge.

So for the vast majority of people they will go bankrupt, lose their debts and then be discharged a year later.

In the year they are bankrupt, a bankrupt will not be able to apply for credit without getting the approval of their OR. Most people I speak to have no intention of getting credit again, apart from a mortgage.

Also in the year of bankruptcy there is a ban on being a company director or involved in the management of a business. For those interested in maintaining a business this can be achieved by getting a spouse to run the business in their place.

For many the main concern will be their family home. If the bankrupt cannot afford the mortgage payments and there is negative equity in the property, the advice would be to stay in the property until the OR asks you to leave or the property is repossessed. The shortfall on the mortgage is written off in the bankruptcy. For many people this is a very good way to get rid of a large amount of bad debt.

If the house can be afforded and kept on, it is possible to buy back the property from the OR. At present many houses are suffering from negative equity, and so transfers are being made for £1 plus costs.

If you have a motor vehicle, this can be kept if its value is below £2,000 and it is needed for a job. If it is above £2,000, the OR may ask you to deliver it up to him and he will give you £2,000 to buy a new car.

So for people with large debts and little in the way of assets, bankruptcy is certainly something to consider.

Before taking this step however, seek professional advice