In the final part of his guide on debt crisis, Nick Lord takes a look at the pros and cons of bankruptcy and whom this type of debt solution is suitable for.
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Record numbers of people are using bankruptcy as a debt-clearing method.
However, it is only truly helpful in limited circumstances - used incorrectly
and bankruptcy can create far more problems than it solves.
Advantages of bankruptcy:
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Limits the period over which you repay your debt;
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Provides legal protection in respect of your debts;
Disadvantages of bankruptcy:
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You are subject to the control of the court;
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You face the loss of assets other than those necessary to satisfy your domestic
needs, your tools of the trade, and vehicles you need in the course of your
employment (which does not include travel to and from work);
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Gas, electricity, and telephone contracts will need to be put in to the name of
another adult who lives with you. If there is no other adult, you will have to
change to a prepayment system or lose the service;
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You cannot hold certain public offices while you have not been discharged from
bankruptcy, nor can you continue as a director of a limited company;
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Your access to credit will be severely restricted until you are discharged;
thereafter you will pay higher rates of interest until you have re-established
your credit rating;
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Some debts will not be included within the bankruptcy. These include mortgage
and other secured debts, magistrate court fines, debts payable after personal
injury claims, and debts to the student loans company;
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Any determination by the court that you have acted dishonestly or recklessly
can lead to restrictions on your discharge from bankruptcy;
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You will normally lose the use of your bank account and will be forced to open
a 'basic' account with no overdraft and limited other facilities;
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You should assume that your employer, friends, and neighbours will find out
about your bankruptcy. Your bankruptcy will be publicised in the local Press
and is available to anyone who wants to request information about you;
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You will have to pay £475 to petition for bankruptcy.
Bankruptcy can be a good option if:
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You face a substantial debt problem, few assets, and limited ability to pay your debts;
Bankruptcy can be unhelpful if:
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You are attracted by the advantages without fully considering the downsides of the bankruptcy procedure and aftermath;
Bankruptcy can be disastrous if:
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You have assets which will be seized by the bankruptcy trustee;
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Your employment, business or personal relationships will be detrimentally affected.
Read three case studies putting the various debt crisis options into practise
There is no set answer about how to tackle debt - if there was then everyone
would use it. The only way around debt is to consider YOUR circumstances and
find a solution that is right for your needs. Consider all the options outlined
in this guide and take an honest evaluation. Don't look for the easy way out -
consider your long-term financial stability, your credit rating and always take
a thorough look at the market to make sure you're getting the best rates.
Good luck, and may you soon enjoy a bright financial future.
