Bankruptcy / Sequestration - is this the right option for you?
Summary
Bankruptcy is an option that often has to be considered when an individual cannot pay their debts as they fall due. They may opt for bankruptcy or be made bankrupt by a creditor. Under bankruptcy their assets are transfered to a trustee who will use them to pay off the creditors. This may include the persons home. A first time bankrupt with debts will generally exist bankruptcy (i.e. be discharged) one year after the date of the bankruptcy order.
Although bankruptcy has a bad stigma and is publicly advertised, it should always be considered when dealing with individual insolvency cases. The basic criteria for bankruptcy is as follows:
- If you have a very low or negative disposable income
- If you cannot afford to make repayments on your debts
Please note that if your are faced with the prospect of bankruptcy you should look at alternatives such as debt management or the Individual Voluntary Arrangement procedure (IVA). With an IVA you agree to pay off an amount of debt over time (3-5 years) with the balance being written off.
We have detailed FAQs for IVAs and Bankruptcy on this website. The Effects of Bankruptcy
Once you have been made bankrupt all assets belonging to you come under the control of a Trustee, including your home. If you live with a partner and/or children then a period of twelve months may be allowed for other living arrangements to be made. At the end of the twelve-month period, the property will almost certainly have to be put up for sale, enforced by a Court order if necessary. If you own the property with someone else they may be able to make an offer to buy out your interest in the property from the Official Receiver.
The other main disadvantages of bankruptcy are the restrictions placed upon you and the stigma of having to declare oneself as a bankrupt for certain transactions. The key Implications of Bankruptcy?
- You lose control of your assets. These are used to settle your debts.
- You cannot obtain credit for over £250 without the permission from the lender.
- Your credit is affected for many years after the annulment.
- You may be publicly examined in court.
- You cannot act as a company director.
- You cannot take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court.
- You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
Becoming Discharged from Bankruptcy - Life after Bankruptcy
Usually after 12 months you are discharged from bankruptcy - this means that the restrictions placed on you while you were bankrupt are lifted and you are released from your most of your debts.Your credit status will remain poor for many years after. |
