A Quick Guide To Bankruptcy
Bankruptcy is the ultimate ‘solution’ to debt problems, involving a wiping clean of the financial slate, and the writing off of all debts. Changes to the rules governing bankruptcy have made it less punitive to those involved, and that combined with lessening social stigma have made increasing numbers of people to see it as a viable way out of debt rather than the personal and financial disaster it was once considered.
Bankruptcy is, however, still a very serious issue and fully qualified professional advice must be sought before either voluntary or involuntary bankruptcy proceedings are set in motion. Below we set out the basics of the process.
What Bankruptcy Involves
First, an application for bankruptcy is made to the court. This involves a fee of £495, which is payable by you if the bankruptcy is a voluntary one, or by the creditor taking out the action if you’re being forced into it.
Once the bankruptcy is granted, the official receiver is given the power to sell any of your assets which are not essential to your employment or work, and which aren’t essential for basic living. Note however that your house is not exempt from being sold – bankruptcy is NOT a way out of repossession proceedings.
Income Payment Agreement
Next, your budget will be examined, and the difference between your income and outgoings will be used to service your debts under what’s known as an Income Payment Agreement or IPA. This agreement can last up to 3 years.
Your Bankruptcy Made Public
Details of your bankruptcy will be published in both your local newspaper and the London Gazette, and your landlord or mortgage lender will also be notified.
After one year, your bankruptcy is discharged and all remaining debts are written off. Note however that any IPA will still be in force and payments will continue on the agreement for the length of time specified when it was drawn up.
Now that you are no longer bankrupt, you are free to apply for financial products such as a mortgage. In practice, credit will be extremely hard to come by as the fact of your bankruptcy will remain on your credit file for 6 years after it is discharged. Few lenders will be willing to advance credit under these circumstances without significant assets to act as security – which is unlikely for anyone recently bankrupted.
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