Bankruptcy Questions Answered

Neil Robertson asked:


If you are considering going bankrupt, then you are obviously in a very serious debt situation. Bankruptcy may not be the best solution for you, so it is very important to consider the alternatives and get qualified debt advice.
What are the Consequences of Going Bankrupt

In the UK, the consequences for bankrupts are quite severe. You will have your bank accounts frozen, you will have to sell any major assets that you own (house, car etc.), and you may have to pay some money each month out of your income to the insolvency service (this is quite rare). Certain professions do not allow you to be a bankrupt, e.g. accountancy or police.

You will not be able to obtain credit whilst you are bankrupt and you will find it extremely difficult to obtain once you have been discharged from your bankruptcy.

There is a risk of a criminal conviction if the investigation into your finances finds that you were reckless in the way that you got into debt (e.g excessive gambling etc.) and had no intention of paying it back. These types of convictions are quite rare and will only be applied in the most serious of circumstances.

What are the Benefits of Bankruptcy

Bankruptcy is the quickest route to becoming debt free. Once you have presented your petition and been declared bankrupt you will immediately be free of all your unsecured debts. This compares favorably with the timescale for an individual voluntary arrangement that can take 5 years or more to clear your debts.

Alternatives to Bankruptcy

If your situation is serious enough to consider bankruptcy then the only realistic alternative that will resolve your debt problem in a reasonable time is the Individual Voluntary Arrangement (IVA). This is suitable for people that have a profession that will not allow bankruptcy and also makes it more likely that you will be able to keep your home. As previously noted it will take longer to resolve your debt problems (5 years is the standard period but this can be shortened by making a lump-sum payment from a remortgage). There will be no investigation into your finances other than the proposal that the Insolvency Practitioner puts forward to your creditors.

Making the Decision Between Bankruptcy and an IVA

You should always seek qualified advice when deciding between bankruptcy and an IVA. The following is offered as guidance only:

You should try to arrange an IVA if: You have significant assets that you want to protect. You are in a profession that doesn’t allow you to be bankrupt. You are worried that your conduct might leave you open to criminal conviction.

You should consider bankruptcy if: You don’t own you own home. Your job is not money related and there are no known restrictions on you becoming bankrupt.



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Stephen Morgan asked:


OK perhaps the above headline might be accused as being slightly on the sensationalist side of things but go with me slightly as I explain my reasoning and the logic behind such a potentially controversial headline.

The core message put out recently by the UK Governments Insolvency Service was that a record number of people in the UK were made officially insolvent between July and September 2006.

The Governments Insolvency Service claimed that 27,644 people were either made bankrupt or entered into an Individual Voluntary Arrangement (IVA) as a way to control or manage their debts in an ordered fashion.

It was too early obviously to know how big a percentage of those who entered into an IVA had it failed by their manager or supervisor but it has been claimed previously that in some cases up to 50/60 percent of those entering an IVA fail to complete it in an orderly manner and therefore find themselves being made forcibly bankrupt at a later date.
The other key statistic was that insolvencies were apparently 55% higher than during the comparable period this time last year and the smart money (to spoil the metaphor) is on the figure topping the 100,000 mark for the year.

Add to that the latest trend in Lifelong Mortgages whereby the Lender gives the Borrower up to 57 years to repay the mortgage and will extend up to 5 times the borrowers annual income on a LTV basis then you can see where it would be very easy to over extend oneself.

It would appear that the proportion of those applying for and entering IVAs rose as compared to those deciding (or having decided for them) to go down the straight bankruptcy route. This latter fact has been heavily criticised (and understandably so) by the mainstream press as the process of an IVA or (Chapter 13 Bankruptcy, its equivalent in the US) is very heavily marketed as the ultimate solution to provide the maintenance of the maximum amount of dignity in an otherwise sordid scenario.

This is not entirely the case and is most certainly not always true. Whilst the principle of an IVA is fine and extremely noble, sometimes it is just not practical and therefore should be counselled against at the earliest opportunity. That is not to say that IVAs are a totally worthless idea in principle.

In the right circumstances they are ideal and managed correctly work extremely well for those who enter into the process with their eyes firmly open. Sadly this is not always the case and most often the reality is the exact opposite.



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