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Tackling your debts

How much debt do you need to be bankrupt?

Posted 29 December 2015

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You may have some debt, but is it enough to consider going bankrupt?

If you’ve got problem debt then you might be thinking of bankruptcy as a possible solution, if for no other reason than it is the debt solution that most people have heard of.  But do you know how much debt you need to have in order to be in a suitable position for bankruptcy?

How appropriate is bankruptcy for your situation? 

Before we get any further into this topic, we need to cover a few of the basics. Firstly, this advice is for people living in England and Wales. If you live in Scotland, you can view the debt solutions available to you on our Scottish Debt Solutions page

Secondly, bankruptcy is only suitable in certain circumstances.  So, before deciding on anything, it makes sense to chat to a debt expert about your options and whether it is the right debt solution for you.  You can find further information about bankruptcy here. And if you’d like to talk to someone about your situation, just choose one of the ‘contact us’ options on the left of the page.

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Factors to consider before choosing bankruptcy

There’s no set amount of unsecured debt you need to have to declare yourself bankrupt. Whether or not bankruptcy is right for you isn’t driven by how much debt you’ve got, but more on your ability (or not) to pay it back within a reasonable amount of time.

For example, if you have less than £15,000 of unmanageable debt then a DRO (Debt Relief Order) may be a more suitable solution for you – if you qualify.  Like bankruptcy it is a form of insolvency, but it has a number of advantages – for example it costs just £90 to enter into a DRO, compared to £705 (£525 Official Receiver fee and £180 court fee) for bankruptcy.  However, there are strict rules with DROs about the amount of assets you can own and your disposable income.

Although there is no minimum amount of debt that you need before you can consider bankruptcy, as you can see from the costs above,  it isn’t a cheap process – so if your debts are not that large  it may not be the most appropriate solution for you.  Don’t worry if this is the case – there are a number of others solutions that can help you deal with problem debt. 

Another important thing to think about when considering bankruptcy is whether or not you own your own home.  If you do, then you may be required to sell it if you go bankrupt.  However, if you opt for another debt solution, such as an IVA (Individual Voluntary Agreement) then you can usually keep your home.   

As we mentioned earlier, we’d always advise that you speak to a trained debt advisor if you’re thinking of bankruptcy. They will be able to advise you on the best way forward for your particular situation.

Once you’ve spoken to a debt advisor, if they recommend that bankruptcy is the best option for you, there are places you can turn to for help with paying the fee. For more on this why not have a read through I can’t afford the bankruptcy fee, what do I do?   

The pros and the cons 

All debt solutions have both advantages and disadvantages. If you do decide to go bankrupt the biggest advantage is a feeling of relief that you’re getting your financial life back on track. The stress of having to deal with lenders will be lifted from your shoulders and you’ll be able to look forward to a time when you can be debt free. 

One of the main disadvantages of bankruptcy is that it will show on your credit history from the time the bankruptcy starts, until a period of six years has passed after it’s ended. This means that any further borrowing you try to do could be more difficult and more expensive than it wold have been. For all the information on the pros and cons of bankruptcy, see our detailed information.

If you’d like to chat through your options, don’t hesitate to contact us using the buttons on the left of the page.

 


by Shelley Bowers

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.