Ever heard someone say, ‘the best thing about rock bottom is that you could never go any lower’? Well, the rock bottom of finances is no different. If you have reached a point of insolvency, your debt problems are the worst they could get. Your only choice after such a point is declaring bankruptcy. While it sounds like a problem, it’s not all too bad. Let’s discuss the pros and cons of bankruptcies UK.
The word bankruptcy popularly flashes in mind headlines about corporations declaring bankruptcy over photographs of their owners with the worst possible frown. A rather sensationalized scandal, one could say. The general image of bankruptcy is hard to distinguish from a fatal downfall in the public mind. But the picture is very different in the technical world.
I have attempted below to simplify things for you. After reading this piece, you will be equipped with all the necessary knowledge to decide for yourself if bankruptcy is the way to go.
But be very clear on something. Although this list of pros and cons makes total sense, the way it applies depends largely on your specific case. While reading, keep your business structure and debt situation in mind. Do not be misdirected by the course of the majority. Before we discuss the pros and cons of bankruptcies UK, let’s talk about the meaning of bankruptcy.
What is Bankruptcy?
The most well-known type of insolvency is bankruptcy. You can manage debts that you cannot afford to repay within a reasonable amount of time by declaring bankruptcy. It is a legal procedure that allows you to eliminate debts that you are unable to pay, and it could entail selling some of your assets (your possessions and property).
Voluntary bankruptcy is a type of insolvency. You are free to choose yourself. On the other hand, when your creditors determine they have no other way to collect the debt you owe them, it is called an involuntary bankruptcy.
Depending on your situation, a bankruptcy in the UK lasts an average of one year. The contribution of payments to your bankruptcy could go on for as long as three years.
Only residents of England, Wales, and Northern Ireland may file for bankruptcy. However, sequestration, which is Scotland’s version of bankruptcy, is an option for people who live there. Read on to discover the pros and cons of bankruptcies UK.
What Debts can be Included in a Bankruptcy?
- Credit Cards.
- Utility Arrears.
- Store Cards.
- Overdrafts
- Catalogue
- Benefit Overpayments (If not fraudulent).
What Debts can you not Include in a Bankruptcy?
- Child Maintenance Arrears (if set by CSA or Child Maintenance Service).
- Criminal Fines.
- Debts you obtain after the date of your bankruptcy order.
- Debts are taken out fraudulently (e.g., benefits fraud).
- Mortgages (if you want to keep the house).
- Social Fund Loans.
- Student Loans.
- TV License Arrears.
- Court Orders telling you to pay compensation for someone’s injury.
- Payments ordered by the court as part of family proceedings (e.g., in divorce cases).
What are the Pros and Cons of Bankruptcies UK?
Pros
Paid Off Debts
Your debt load will decrease if you declare bankruptcy, since all the unsecured debts you have missed payments on will often be cancelled off.
Security from legal action
Your insolvency is officially acknowledged after you obtain a bankruptcy order. Since they can no longer file a lawsuit to get their money back from you, this gives you some protection against creditors.
Zero additional fees
Any additional costs and penalties will be stopped by filing for bankruptcy. In other words, you are no longer subject to additional fees and interest payments from your creditors.
Lower Pressure
After filing for bankruptcy, you won’t have to stay in touch with your creditors and won’t get any more communication from them.
Rebuild Credit
Even though bankruptcy stays in your credit report for seven to ten years, it does not stop you from improving or rebuilding your credit over time. Insolvency affords a chance to begin fresh and paves the way for a better future.
Eliminating Unsecured Debts
Getting rid of unsecured debts is an additional advantage of declaring bankruptcy in the UK. This may include credit card debt, personal loans, and other unsecured debts. Such a relief can give individuals and businesses struggling with unmanageable or debt problems a brand-new financial start.
Cons
Asset Liquidation
Bankruptcy may lead to liquidation of your home or vehicle to pay off your debts.
Occupational Restrictions
Making a bankruptcy filing in the UK may also have an impact on your employment, particularly if you work in the legal or financial industries. For instance, some employers won’t even let people who have filed for bankruptcy keep working for them. Before implementing any official insolvency solution, you should always double-check your employment contract.
Company Directors
Individuals who are company directors and declare bankruptcy in the United Kingdom may be subject to additional restrictions. As a result, they may be unable to serve as a company director or manage a limited liability company for a period, which can have severe repercussions for their business.
Changes to the credit file
A bankruptcy will have a negative impact on your credit report. Most prominently, for a period of six years, the credit file would reflect that you were bankrupt.
Public Document
The bankruptcy filing status becomes public information. No, not like the headlines. Do not imagine your frown photograph in the papers just yet. The register of insolvencies, the bankrupt’s hall of fame, will have an additional entry as you.
Difficulty Securing Loans
In the United Kingdom, bankruptcy can make it difficult to obtain future loans. Lenders may view the individual as a high-risk borrower and be unwilling to extend credit to them. In addition, if the person does manage to obtain a loan, they may be subject to high interest rates.
Now, you understand the procs and cons of bankruptcies UK.
How Much Does Declaring Bankruptcy Cost in the UK?
Depending on the particulars of each situation, filing for bankruptcy can cost different amounts in the United Kingdom. For an estimate, you can include in the cost a £680 petition charge for bankruptcy and a £90 adjudication fee.
Although during bankruptcy, a onetime payment towards outstanding obligations could also be necessary. However, fee waivers or reductions may be available for people who are unable to pay the full amount.
Therefore, is crucial to assess individual circumstances and obtain free advice from debt counsellors or insolvency professionals before deciding to file for bankruptcy and incurring the accompanying charges.
What Proportion of Bankruptcies in the UK are Rejected?
In the United Kingdom, there is a refusal rate of about 1% to 2% in the case of bankruptcies. Bankruptcy may be rejected if the debtor engaged in dishonest behavior, committed a crime, or was already declared bankrupt within the previous six years.
Additionally, if the adjudicator or the Official Receiver finds that the debtor has enough disposable income or valuable assets that can be sold to pay off their debts, the bankruptcy application may be rejected.
By getting free guidance from debt counsellors or insolvency lawyers, people can stay clear of the frequent problems that can lead to their bankruptcy case being rejected. Therefore, it is crucial to comprehend the pros and cons of bankruptcies UK.
In the UK, can a Bankrupt Open an Account?
Yes, as a bankrupt, you can open accounts in the UK. It’s not so bad as the harrowing headlines. For individuals with bad credit histories, including bankrupts, several banks provide simple bank accounts.
Furthermore, it is important to keep in mind that each bank may have its own policies and limits, and some banks may not accept customers who are bankrupt. Debit cards are normally included with standard bank accounts, however overdrafts and other services, including online or telephone banking, may not be available.
Legal Considerations for Bankruptcy
It is critical to keep in mind that declaring bankruptcy is a legal procedure, and those who do so in the UK must adhere to certain legal standards. If you fail to pay due attention to it, your mugshots will be in the news instead of your frown profiles. You must understand the pros and cons of bankruptcies UK.
If you break the rules, bankruptcy may last longer, or further restrictions may be put in place. The guidelines are as follows:
- You cannot obtain more credit than £500.
- To plead bankruptcy, you cannot be a company director.
- You cannot be in practice of insolvency law.
- To advertise or operate a business, you must seek approval from the court.
- You cannot act as a sole trader under a name different to the one on your bankruptcy order unless you inform all businesses you trade with about your bankruptcy.
Keep in mind, the violation of these laws is a crime. In other words, there could be a fine or even jail time for not adhering to these limits. Additionally, if your income changes (up or down), if you receive a lump sum of money, or if your costs alter, you must inform your official receiver. A way to make such adjustments could be to change the amount you pay to your creditors monthly.
Free Counsel
The Citizens Advice Bureau and the National Deb line are two places in the UK where people with debt problems can get free assistance. These organizations provide information on debt relief options, such as IVAs, bankruptcy, and others. Surely, you now have a grasp of the pros and cons of bankruptcies UK.
In conclusion, bankruptcy can help people and organizations with unsustainable debt get debt relief and a fresh start financially. It’s crucial to think about the restrictions and consequences connected with bankruptcy before making a choice. Other debt relief alternatives, such as IVAs, can be more suitable for some people.
All in all, declaring bankruptcy in the UK should only be done as a last resort and should not be taken carelessly.
