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Tackling your debts

How much debt do you need to be in for your lenders to make you bankrupt?

Posted 08 January 2016 by Shelley Bowers

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You may have some debt, but is it enough for your lenders to push you into bankruptcy?

We’ve already looked at how much debt you’d need to have to make yourself bankrupt. Now we’re going to find out about how much debt you’d need to have for one of your lenders to make you bankrupt. So let’s get on with it.

 

A note! 

Again, before we start, this advice is for people in England and Wales only. If you live in Scotland there are a number of different debt solutions you can choose. See what’s available here.

 

It’s also worth saying again that bankruptcy is only one of a number of debt solutions available and whether it’s appropriate for you or not will depend on a number of factors. To find out if bankruptcy is the best way forward for you, why not have a chat with one of our trained debt advisors by choosing one of the ‘contact us’ options from the left hand side of the page.  

 

 

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Being made bankrupt by a lender

The rules for when a lender can make you bankrupt have recently changed, on the 1st October 2015 to be precise. The rule change is especially beneficial for people with only small amounts of debt, as the level at which a lender can force you into bankruptcy has been upped from just £750 to £5,000 – quite a big improvement. This means that hundreds of people who were at risk of being made bankrupt by their lenders against their wishes, can no longer be. And that’s great news, because the negative effects that being made bankrupt can have on your financial life, potentially for many years to come, were severe in comparison to the amount of debt owed.        

 

Being made bankrupt by an Insolvency Practitioner (IP)

There is one more way you can be made bankrupt, even though it’s not to do with the level of debt you have, we want to include it for completeness. So, this final route into bankruptcy is when you’ve not been able to complete your Individual Voluntary Arrangement, known as an IVA. If this happens, your insolvency practitioner (IP), who takes care of your IVA, may have to (in some circumstances) apply to the court to make you bankrupt. 

 

Okay, so we hope that you are now more familiar with the level of debt you’d need to have to make yourself bankrupt or to be made bankrupt by a lender. However, we always hope that you’ll speak to someone before your financial situation gets to this point. We have trained debt advisors ready and waiting to help you, all you need to do is choose one of the ‘contact us’ options on the left of the page.   

 

The advantages and disadvantages of bankruptcy  

Bankruptcy, like all problem debt solutions, has both advantages and disadvantages. Two of the advantages are that it can ease your mind by allowing you to have enough money to live on again, after suffocating in debt. It can also remove the worry of contact from your lenders, which can be very stressful if you have a number of lenders contacting you at once. This can be a huge relief for most people and is reason enough for many to consider bankruptcy, if the amount of problem debt is large enough. 

However, bankruptcy is a formal debt solution and, as such, it has some serious and long term consequences on your credit file. For example, your bankruptcy will be noted on your credit history for at least six years. 

 

You may be wondering why this matters, but it’s easy to see how this can affect you when you realise that lenders will check your credit file as part of the application process for further borrowing. They look at how good you are at paying back your debts and then use this information to decide if they want to approve your application or not. Some utility providers will even check your credit file to decide whether to allow you to switch your gas / electric to them or whether to allow you to pay by direct debit. 

 

Being made bankrupt doesn’t mean you won’t be able to get credit in the future. It just means that you may not be offered the best deals, so it could work out more expensive for you in the long run.

 

If you can afford to do so the Official Receiver may also decide that you must pay some money into your bankruptcy for up to three years.  If you’d like to know more about how bankruptcy works, including what happens if you own your home you can find more info here. If you want to know more about the restrictions that are placed on you while bankrupt, you can find detailed information in Bankruptcy Conditions – part 1 and Bankruptcy Conditions part – 2.    

 

If you’d like to discuss the idea of becoming bankrupt, please use one of the ‘contact us’ buttons on the left of the page to speak to one of trained money advisors. We’ll go through your finances in detail, advise you on the best way forward and we can get started right away, if you want to go ahead.

 

 

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.