Bankruptcy is the debt solution we all know most about. Those of you who have followed my blog and stories will know that I have been made bankrupt, so I speak from experience.
It’s not a solution I’m proud of but it’s where I am today. It’s meant I’ve learned a lot about debt and the available solutions which I feel I can share with you.
There are two routes to go bankrupt and i’ll touch on both of these. The first is a DRO and the second is traditional bankruptcy through a court.
Bankruptcy lasts for 1 year regardless of the route you enter to go bankrupt. You could be asked to contribute your available disposable income towards your bankruptcy for three years in what’s called an Income Payment Arrangement / Income Payment Order.
The first bankruptcy route is the Debt Relief Order (DRO). The DRO is for people who:
- Have unsecured debt of £15,000 of less
- Do not own their home (even if it’s in negative equity)
- Do not have assets worth more than £300. If you have a car this can be up to the value of £1,000
- Do not have £50 left after they have subtracted their monthly expenditure from the income.
In terms of your assets you can exclude things like fridge freezer / washing machine etc as these are essential to live.
If you think a DRO is suitable for you then speak to a debt advice charity who can explain the process of entering a DRO. The DRO costs £90 and you must pay this upfront before entering the solution.
The second route to enter bankruptcy is for people who can’t qualify for the DRO. It can cost up to £700 per person to go bankrupt. So you might have to save up to enter bankruptcy!
You would be required to pay the money upfront. You have to complete the necessary forms, take them to your local court on the appropriate day and have a judge approve your bankruptcy. Sometimes the judge will want to talk to you about the bankruptcy and ask some questions.
Shortly after being made bankrupt you will receive a letter from the Official Receiver to review your income and expenditure and determine if you can afford anything towards your bankruptcy.
As opposed to the dictionary definition, I’m going to discuss what bankruptcy means for you, personally, financially and professionally.
Your bankruptcy is recorded in a trade publications called the Gazette. This lets your creditors know that you are entering bankruptcy, however other people could find this on the internet. Your friends and family don’t usually find out that you have been made bankrupt, unless you tell them.
Your credit file is damaged in bankruptcy because a default is added which lasts for six years. The default can be added at any stage of the bankruptcy. This means your credit file will be impaired and after bankruptcy your ability to get a mortgage or other credit would be tougher.
In bankruptcy you can be asked to contribute towards your debt and this means that you should have no available disposable income for three years.
In some professions it’s not possible to be made bankrupt or the person would have to leave their employment. An accountant is not allowed to be made bankrupt for instance. This means other debt solutions are usually considered first. However, most employment contracts don’t worry about a person being made bankrupt.
Always check your employment contract before entering into any debt solution.
I didn’t quiet believe that bankruptcy would write off all my debt. I would have much rather entered anIVA or debt management plan but it wasn’t possible because I was unemployed.
Bankruptcy does in fact write off your debt so that you no longer have to repay it, but it comes with serious implications for a credit file, employment and a person’s future.
Professional Bankruptcy Advice
Never enter a debt solution without seeking professional debt advice. I’m not a bankruptcy specialist, i’ve just been there myself and I can’t claim to know as much as other charity advisors. I went to a debt advice charity and they were fantastic.
You can speak to your local CAB or telephone 0800 085 0226 to speak to an advisor at Debt Support Trust.