Insights of Bankruptcy

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Shadrach   in Banking & Money

Last updated: 08 January 2020, 10:02 GMT


On today's critical financial situation, most people tend to find ways to cover their expenses that have ended up on loans, unsettled charges or shall we say debts in a general term. If you are struggling with debt, you may be considering all options available to you. One of those options could lead you to bankruptcy – and while for some it may be a turning point, for others it might not be the right fit.

Bankruptcy is a type of insolvency. With bankruptcy, all unsecured debts that you can prove you owe will be written off entirely. However, if you have any assets such as a house or a car, the value of these will be used to pay your creditors.

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Being declared bankrupt is a legal status that is given to you if you cannot afford to repay your debts. For instance, you are deemed to be bankrupt or be made bankrupt if you owe more than £5,000, in which we assumed that is more than the total assets.

Therefore, bankruptcy is not the right outcome for everyone. If you have debts that are less than £5,000, all your regular repayments are up to date and you can afford to keep paying them – then insolvency isn’t going to happen to you.

As an alternative, it may then be worth exploring other options such as a debt relief order (DRO) or an individual voluntary arrangement (IVA).

When you are declared bankrupt, the value of your possessions (house, car, leisure equipment, jewellery, etc.) is used to pay back the money you owe to creditors through disposing or selling or mortgage.

When you are declared bankrupt, the value of your possessions (house, car, leisure equipment, jewellery, etc.) is used to pay back the money you owe to creditors through disposing or selling or mortgage.

To be in this situation can be stressful and emotional event. The practicalities of it mean that you could lose valuable possessions and your bank accounts may be closed. While bankruptcy only lasts for 12 months, the ramifications of such a big financial decision can continue to affect you long after you have been discharged.

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Firstly, your credit rating will be affected for six years, so you may find it difficult to borrow any money for a significant period of time. If you do find a lender that will lend you money, it is likely to be at a higher interest rate as you will be classed as a high-risk customer. Even after your bankruptcy has been cleared from your profile, lenders can still ask if you have ever been bankrupt, which may affect their decision on whether or not to lend you money.

After bankruptcy, you may still not be completely debt free. There are still debts that bankruptcy doesn’t cover, such as magistrates court fines, student loan repayments and debts secured with a charging order. So while all debts that were covered by bankruptcy will have been cleared, you may have others you are still required to pay.

Indeed it is a big financial step, talk about the risks of giving up hard-earned possessions. Pursue on your decision when you get the chance to have the right knowledge to find solutions and if not, better yet consider seeking help from experts for advice from non-profit debt counselling services. One key thing to consider doing once you are the other side of bankruptcy is keeping a close eye on your finances. You could try to improve your credit report by adding a short statement explaining why you got into debt. Then maybe you could consider something like a credit rebuilder credit card in order to start improving your credit