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Bankruptcy

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Bankruptcy Pros & Cons

There is more to bankruptcy than as a way of finally putting an end to harassing debt collectors and nagging creditors. One big side effect of bankruptcy being that your life is likely to be subjected to microscopic inspection

Bankruptcy: The Pros
  • Removes the uncertainty and stress caused by dealing with numerous creditors.

  • Once an order is made, a third party takes over the administration, decision making and payment process of the debts.

  • Debtors typically pay less with a bankruptcy order than with an IVA.

  • Creditors forced to recognise that they must accept less money than is owed.

  • Certainty that creditors cannot change their minds and that once in place creditors seldom take little interest in the debt.

  • Once discharged, most debts are written off and creditors cannot pursue them. Some debts, such as Student Loans Company debts, are not included in bankruptcy. For those debts the bankrupt will continue to owe them even once they have completed their period of bankruptcy and have been discharged.

Bankruptcy: The Cons
  • The debtor will lose any realisable assets of value. Though they may not be sold until immediately and, perhaps, not even until after the bankrupt has been discharged.

  • If the debtor owns equity in a home, this will almost certainly be sold.

  • If a business is owned, this could be sold and any employees dismissed.

  • Should the debtor live in rented accommodation and have rent arrears, this could put the home at risk if the landlord considers those arrears are unlikely to be paid. In this case he could commence possession action. Also, some tenancy agreements contain a clause stating that an undischarged bankrupt cannot be a tenant.

  • Bank current accounts can be difficult to obtain, though there are some very basic accounts offered by a limited number of banks and building societies.

  • Can ultimately be expensive. All fees for the insolvency service, courts and any trustee are taken out of the debtor's assets. There is a 15% levy on all sums received by the Official Receiver/trustee.

  • If trying to obtain credit of more than £500 (including ordering goods and then not paying for them on delivery) the debtor must disclose his status as an undischarged bankrupt.

  • The debtor must allow all his financial affairs to be scrutinised, and can face crinimal charges if irregularities are found.

  • Cannot hold certain public offices, such as MP, councillor or magistrate, or practice certain professions, such as solicitor and accountant. May not hold office as a trustee of a charity or a pension fund. Nor can a bankrupt be a company director or trade under any other name than the one used ay the time of bankruptcy.

  • Names of those made bankrupt are published in the London Gazette and the local press and can be viewed online at the Insolvency Service website, making them accessible to anyone in the world.

  • The trustee must be informed of any changes in circumstances during the bankruptcy. Once discharged from bankruptcy, the debtor's assets may still be adminsitered by the trustee/Official Receiver.

  • Certain debts cannot be written off: fines, maintenance/child support payments, other family court orders, debts to secured creditors, debts from personal injury claims, debts incurred through fraud, debt arising from certain other orders of the criminal court.

  • Bankruptcy does not affect the rights of secured creditors. Where there are joint debts, creditors can still pursue the non-bankrupt debtor.

  • Bankrupts found to be blameworthy, culpable or dishonest can be made subject to a Bankruptcy Restrictions Order which can impose the same bankruptcy restrictions, plus some additional ones, for anywhere from 2 to 15 years.

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