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Bankruptcy can write off your debts, but there are a few things you need to consider before you apply.
Bankruptcy is a formal debt solution and can help people who are insolvent, in the right circumstances. With bankruptcy your assets may have to be sold and the money put towards your debts and you may have to contribute something towards your debts each month, if you can afford it. Once you complete the solution successfully, the rest of your debts included on the plan will be written off.
The Scottish version of bankruptcy is called Sequestration, if you can’t afford to pay your debts and you live north of the border, make sure to look into it. Let’s have a look at what bankruptcy involves.
How does bankruptcy work?
Because bankruptcy is a formal way to deal with your debts, it’s legally binding for you and your creditors. It normally lasts for a year and during that time, your financial affairs are looked after by a Trustee. Your Trustee will look at any assets you have and decide whether you need to sell any of them, however you won’t be expected to sell anything you need for work, or household items you and your family need, like furniture.
The Trustee is also the person who decides whether you have to pay anything towards your debts while your bankruptcy is ongoing, known as an Income Payment Agreement (IPA). If you do have to pay something, this will be carefully worked out so that you have enough money to pay for all your essential bills and you won’t ever be expected to pay anything if your income is made up solely of state benefits.
Once your bankruptcy ends you are “discharged”, usually after 12 months, and the rest of your unsecured debt included on the plan is written off completely, providing you with a financial fresh start.
Things to consider
Just like all debt solutions, bankruptcy has a negative effect on your credit history. This is because it involves breaking the agreement you originally made with your lenders when you first took the credit out. It will show on your credit history for six years from the date that your bankruptcy starts and can make it more difficult or more expensive to borrow or get services, like a mobile phone contract, in the future.
Bankruptcy costs £680 in total, which is split between a deposit of £550 and an adjudicator’s fee of £130. You can pay in instalments, however your application won’t be looked at until the fees have been paid in full. You apply online for bankruptcy, and you no longer have to appear in court at any stage in the process.
Make sure it’s right for you
So to summarise, bankruptcy can clear your debts in a year, but it can also have other serious effects, so it’s important to make sure it’s the right solution for you before you apply. Be sure to speak to a trained debt advisor, they’ll talk you through your options.
by Christine WalshBack to blog home