At a time when student debt due to tuition fees is at an all time high, the idea of universities...
Bankruptcy is a word which carries distinct connotations and many people still feel that it carries a certain stigma. In truth, it’s just one of a number of insolvency processes which can be used to deal with problem debt and like other debt solutions it has its advantages and disadvantages. So what are the pros and cons of bankruptcy?
Bankruptcy Pros – The Advantages of Bankruptcy
- Pressure from your creditors will stop as soon as you’re declared bankrupt, including any action being taken in the courts relating to your debts.
- The Official Receiver or Licensed Insolvency Practitioner acting as Trustee will communicate with your creditors so you no longer have to.
- Once the period of Bankruptcy is over, which is usually 12 months, all the debts (with certain exceptions) you had at the point of declaring bankruptcy will be written off and you’ll be able to start afresh with a mostly clean slate.
- While anything you own of value may be realised to pay what you owe to creditors, your household effects will not.
- You’re also free to earn enough to live on, only income deemed ‘excess’ to your reasonable needs will need to be handed over.
Bankruptcy Cons – The Disadvantages of Bankruptcy
- There is a fairly high cost starting a bankruptcy. Being in enough debt to make Bankruptcy a viable option can make it difficult to raise the funds needed to apply
- Like any official insolvency process, becoming bankrupt will mean that your personal details will be published publically on the Individual Insolvency Register.
- Your financial affairs will be subject to great scrutiny, so any irregularities will be discovered which, depending on their nature, may result in further sanctions.
- There are certain professions and positions from which bankrupts are barred from being engaged. If you rely on such a position to earn a living then becoming bankrupt may mean you lose your job as a result.
- Anything you own that’s of value (subject to certain exceptions) can be seized and sold to pay off your creditors. Any equity you have in your home will most likely be realised.
- If you rent your home, there may be a clause in your agreement that permits eviction in the case of bankruptcy. If you’re sharing rental property with anyone else, there may be a clause in the agreement which says everyone is ‘jointly and severally liable’ – this means that the landlord can pursue everyone else for the rental debts you’re not able to pay.
- If you’re a high earner, you may be required to continue paying towards your pre-bankruptcy debt for up to three years despite being discharged after 12 months.
- Not all debts will be written off after a bankruptcy. Child maintenance, certain fines, debts relating to fraud, money owed to the Student Loans Company and debts owed to secured creditors will all still be payable.
- Getting credit after a bankruptcy, unsurprisingly, will be fairly difficult and while not impossible, any credit a discharged bankrupt can obtain will likely be on very high rates of interest.
After Reviewing the Pros and Cons of Bankruptcy, is it right for you?
Bankruptcy isn’t right for everyone and the pros and cons of bankruptcy must be carefully assessed in order to make and informed decision on whether it’s the best solution your own circumstances.
As Licensed Insolvency Practitioners, we’re best placed to be able to review your situation and give you the best advice as to which insolvency is likely to give you the best outcome and help guide you through the process of dealing with your problem debt once and for all.
Speak to us, we can help.