Is Personal Bankruptcy the Right Debt Solution?
Bankruptcy Laws Work Against Many People with Financial Problems
Dec 10, 2008
In order to declare personal bankruptcy it is necessary to pay a court fee of £150 and administrative costs of £325. Although most people become discharged bankrupts after 12 months, the entry stays on personal credit reports for 6 years.
The Insolvency Service published data showing that "27,087 people were made insolvent during the third quarter of 2008, 8.8% more than in the previous three months." This is the second highest figure recorded by the Ministry of Justice since it started collecting data in 1995.
When declaring personal bankruptcy, an Official Receiver is appointed to perform an analysis of a debtor's financial position. If the Official Receiver finds that the debtor was responsible for their current financial status they can be held accountable under a Bankruptcy Restriction Order (BRO).
Personal Bankruptcy Following an Involvement in Speculative Activities
Bankruptcy laws have changed following the passing of the Enterprise Act 2002. Whilst many people who have spent wildly will become discharged bankrupts after 12 months, those involved in speculation will be held accountable under a BRO for between 2 and 15 years.
It is not uncommon for people who have spent all their money on shopping and holidays to be discharged after 12 months. However, those involved in gambling or speculative trading are regular victims of BROs. This can be very unfair given that many problem gamblers are suffering from a form of sickness.
The Family Home Will Form Part of the Bankruptcy Assets
The Official Receiver will seek to realise funds from the sale of a property. Any equity remaining from the sale of the property will be distributed to creditors. The court will seek to achieve this through one of 3 methods:
- Asking friends and family to raise the required funds to buy the bankrupt's share of the home;
- Asking the bankrupt to sell the property on the open market;
- Repossession and sale
It will rarely be possible to keep the family home, other than in exceptional circumstances, so a private rental arrangement will need to be identified. It can be difficult finding a property via professional letting companies as they perform credit checks. Renting directly from private landlords is advised.
The Loss of Employment Status
The majority of jobs won't be affected by personal bankruptcy. It won't be possible to continue working as a: solicitor, accountant, company director, insolvency practitioner, police officer and certain other cash-handling and local authority roles.
It is advisable for those involved in the areas above to consider an alternative debt solution, such as an Individual Voluntary Arrangement or Debt Management Plan. Losing professional status, the family home or being accountable under a BRO are a heavy price to pay for personal bankruptcy.
Those considering bankruptcy may also be interested in reading IVA or Personal Bankruptcy? Which is Better? and Debt Management Plans & Controlling Finances.
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