Personal Bankruptcy - Pros and Cons
Bankruptcy and Debt Relief - Avoiding Further Creditor Harassment
Jan 26, 2009
Personal bankruptcy clears debt and helps someone avoid creditor harassment. Is bankruptcy a superior debt solution to an Individual Voluntary Arrangement or IVA?
Personal bankruptcy is the best debt solution for dealing with serious financial problems. It allows someone to write off debt, but at a cost to personal freedom. Government figures show that a record 107,288 people declared personal bankruptcy in 2007 and this figure is set to worsen as people struggle to pay off 1.2 trillion of personal debts, of which 0.2 trillion is unsecured.
Advantages of Personal Bankruptcy
- Debt write-off. It allows someone with serious debts to write off almost all personal debt, including credit card debt and unsecured loans.
- Discharged from bankruptcy after 12 months. Most people are discharged after a period of 12 months. This is considerably shorter than other debt solutions, such as a debt management plan or Individual Voluntary Arrangement (IVA). For instance, an IVA lasts for a minimum of 5 years before an insolvent is discharged.
- Stops creditor harassment. Once declared, creditor harassment becomes illegal.
- Cheap debt solution for insolvents. Whilst declaring bankruptcy is cheap for debtors, it is an expensive exercise for creditors. It can be done for just £495. Compare this to an Individual Voluntary Arrangement where it is necessary to pay up to £6,000 for the services of an Insolvency Practitioner before even considering a repayment plan for creditors.
Disadvantages of Personal Bankruptcy
- Financial scrutiny. Personal finances will be heavily scrutinised by the Official Receiver.
- Bankruptcy Restriction Order. Those that are deemed to have acted recklessly could be subject to a Bankruptcy Restriction Order (BRO). This includes losing money through gambling, speculation or spending money that a debtor was never in a position to pay back. A person guilty of any of these bankruptcy offences can be held accountable for up to 15 years.
- Loss of the family home. The Official Receiver will expect a property to be sold for the best available price so that the proceeds can be distributed to creditors.
- Not all debts can be written off. Taxes owed to the Inland Revenue, money gained through fraud, child support and student loans cannot be eliminated through personal bankruptcy.
- Credit report. Bankruptcy has grave ramifications for a credit report and will show for 6 years (UK) and 10 years (America.).
- Future credit applications. When applying for more than £500 of credit, it is necessary to inform the lender about being declared bankrupt in the past.
- Professional exclusion. Professional people, such as accountant, lawyers, police and local government officials will lose their job. This can make financial survival difficult.
- Negative publicity. All insolvencies are advertised in a local newspaper and the London Gazette. It also appears on the government's insolvency register.
Personal bankruptcy may seem like a utopian debt solution, but there are a number of reasons why it should be avoided. Those that have a family home or have been involved in speculation may wish to consider an Individual Voluntary Arrangement or a debt management plan.
The copyright of the article Personal Bankruptcy - Pros and Cons in Bankruptcy is owned by Asa Ghaffar. Permission to republish Personal Bankruptcy - Pros and Cons in print or online must be granted by the author in writing.
 |
 |
 |
 |
 |
