What Is Bankruptcy?

The one question I am asked a lot is ‘What is bankruptcy? And is it true it’ll cost me to be bankrupt?

It’s such a shame that anyone has to ask that question but I understand just how scary debt can be…

Most people have debt of some form, whether it is a credit card or you have lots of missed payments and dealing with debt collectors. 

Some people think that declaring yourself bankrupt is an easy way out if you have mounting debt, believe me, I had even thought about it myself back when my debts started to pile up thanks to redundancy. 

However, there is a way out but lets answer some of your questions first…

What is bankruptcy?

When you are financially unable to pay off the debt you’re in you can declare yourself bankrupt. The bankruptcy will usually last about one year and then your debts are written off.

It’s as simple as that? Why don’t we all declare ourselves bankrupt?

One of the biggest cons is you have to sell all of your ‘assets’ to pay some of the people you owe money to first.

If you own your house, you will have to sell it.

If you own a car, you will have to sell it.

Any luxury items such as electrical items, jewellery – basically any item of high value will also have to be sold.

You are able to keep clothing, anything you need for work, necessary furniture etc. 

Are there any more downsides?

  • You can’t borrow any money whilst you are declared bankrupt
  • It will stay on your credit file for 6 year which will make any credit applications in the future much harder
  • Student loans don’t get written off, so you’ll still have to pay that back
  • Your bank may ask you to leave. When it comes to opening up a new bank account you have to declare your past bankruptcy
  • Your name will go on something called an ‘Insolvency Register’ so people will find out that you have gone bankrupt
  • It can even affect a promotion at work depending on your job!
  • It can even become difficult to rent a private home, you would need a guarantor (Someone who can make the rent repayments if you fall behind)

How do I declare myself bankrupt?

There are 2 ways you can do this:

  1. If you owe someone £750 or may then they can declare to make you bankrupt
  2. For around £700, you can apply to the court to declare yourself bankrupt – if you are on a low income then you may be able to get help with this fee.

What will happen afterwards if I do go ahead?

Once you have tried everything else to clear your debts and you do go ahead with the application, there will be a court hearing. The judge will decide if you should be declared bankrupt or not. If they decide that you should be then you’ll have an appointment with an ‘official receiver’ either in person or over the phone.

An official receiver is someone who will manage your bankruptcy and be in charge of selling your assets. You must be honest about your debts and assets and tell them if you have any changes in circumstances whilst you’re bankrupt.

What if someone else tries to make me bankrupt?

Your loan company, credit card company or anyone else you owe money to, can’t make you bankrupt without warning.

First they must send you a ‘statutory demand’ which is an official letter that asks you to pay up. There will be a number of options which will help you pay back the money in smaller amounts over a period of time to help make your debt more manageable.

Receiving a statutory demand doesn’t automatically mean that they will try to make you bankrupt, it could just be a warning to let you know that they are taking this seriously. It would cost them about £700 to make you bankrupt and they’d much prefer to settle the debt another way. They also have to prove that you can’t afford to pay the money back.

Is there anywhere I can get help for my debt?

Yes, there are so many helpful organisations out there who are debt experts and will be able to give you lots of helpful tips and advice for sorting out your debt. They’ll also help you to understand budgeting better to prevent this from happening in the future.

Organisations such as Citizens Advice, Step Change, National Debt Helpline and The Money Advice Service are all great with dealing with debt issues.

As I said earlier, I had been in debt myself. I was made redundant and we had more going out than we did coming in. It was the scariest time of my life and I felt as though I had failed my family – luckily I managed to sort out the problem before it went too far and my creditors agreed to take smaller monthly repayments until I got myself back on my feet. Once I was back in employment, I caught up with priority bills first such as rent, gas and electricity, water bill etc before moving onto clearing the rest of my debt.

Someone else who knows just how hard it is to fall into debt is Ricky Willis, also known as Skint Dad. Ricky is very open and honest on his website, www.skintdad.co.uk ”For many years we struggled with money. We never used to budget, we wouldn’t look for the best value in things and made some bad financial decisions.”

By 2013 he realised that he needed to make huge changes if he was going to survive. 3 year on, Ricky has cleared his debt and also helps others with money saving for a living. 

He is a real inspiration.

There are so many different options you can take before declaring yourself bankrupt, my first step would be to do yourself an income and expenditure and head off to Citizens Advice who will be able to help you put your debt behind you and look forward to more secure financial future 🙂

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