While most people are aware of the negative impact of bankruptcy, they may not realize that bankruptcy provides several benefits. It is important to look at the pros and cons of most situations including something as serious as bankruptcy. Though bankruptcy requires turning over certain types of assets, your surplus income and windfalls received to repay debts, it may be the best option for certain people.
This page applies to people living in England and Wales who are considering bankruptcy (residents of Scotland will want to read about “sequestration”).
This means that an individual could be (depending upon the types of debts that they have) debt-free one year after filing for bankruptcy. Though the credit rating will be seriously damaged, the process of credit repair can begin. Taking out a credit card if one is available to you, or repaying the balance on a high interest, low limit card each month is one potential way to begin to repair the credit score.
Individuals who rent their residences and are current with rent are able to continue paying reasonable levels of rent during the bankruptcy period. They may have few assets to lose during bankruptcy and all of their qualifying debts will be written off when the bankruptcy period ends. This makes bankruptcy a very attractive solution for certain non-homeowners who are in financial trouble.
An automatic stay is issued to prevent covered creditors from taking most court actions to recoup their money. The filer is no longer required to deal with included creditors, making the situation less tense. In addition, many filers are permitted to keep particular belongings including reasonable funds to live on and most household goods. Money owed is usually written off, allowing the individual to make a fresh start when the bankruptcy ends.
To go bankrupt, an individual must apply to a court, typically the county court in the area of residence. Before filing, sufficient cash should be saved to cover daily expenses because bank accounts are likely to be frozen when the bankruptcy order is put in place. A deposit of £525 must be made at time of application and an additional £175 fee may be imposed (figures correct at the time of writing).
A completed bankruptcy petition and statement of affairs must be submitted to the court at a pre-arranged appointment. The individual will also need to swear an affidavit in court verifying that all statements made on the documents are truthful. If the court approves the application, a bankruptcy order is made, probably freezing bank and building society accounts, and the bankruptcy process begins.