The Facts of Bankruptcy

Bankruptcy was traditionally seen as the ultimate financial humiliation for people with debt problems. but more recently people declare themselves bankrupt for much smaller sums of money. In fact, since 1997 when labour came into power there has been a 100% increase in bankruptcy.

In April 2004 the restrictions placed on bankruptcies became less stringent. The restrictions are now lifted after 12 months instead of 3 years and this goes some way to explaining the sharp increase in people declaring themselves bankrupt. The figures suggest that over 70% of bankruptcies are now consumer debtors who have gone bust through spending on credit cards, personal borrowing, store cards etc. This has led to concerns that people are abusing the system by seeking a quick exit and choosing bankruptcy as a way out rather then being forced into it.

Figures from Debt Free Direct in 2006 reveal over 2.6 million people spend over half of their monthly income paying off debts whether that  be mortgages, credit or store cards, overdrafts or loans and currently the nation has borrowed in excess of £1 trillion.

The number of students filing for bankruptcy until 2004 was increasing rapidly. In 2003 no fewer than 899 students declared themselves bankrupt, seeing it as an easy way to eradicate their student loans. However, this loophole was closed in July 2004 when the Higher Education Act came into force stipulating that gradates made bankrupt after this date are still obliged to repay their loans.

What does Bankruptcy mean?

Bankruptcy is available to anyone who is in debt but it is not an easy option despite the relaxation of the rules and regulations. It will free you from your debt so you can make a fresh start and your assets will be shared out amongst your creditors fairly. The court will make a bankruptcy offer once a petition has been presented by either yourself or by your creditors who must be owed at least £750 on an unsecured debt. Even if you refuse to acknowledge the proceedings taken against you an order can still be taken against you and it is in your best interests to cooperate fully with this order once the proceedings have begun. If you dispute the claim you should try and reach a settlement before the petition is heard to minimise expense.

How will Bankruptcy affect you?

Once the order has been made you must comply with a number of requests from the official receiver and provide details of your financial situation including, a list of your assets, amount of each debt and creditor information within 21 days.

The control of your assets which includes the contents of your home will be passed to the Official Receiver. The Official Receiver then decides if the value of your possessions is more than the cost of a reasonable replacement. The Official Receiver will dispose of any assets seized; this goes towards fees, costs and expenses, if there is any remaining it will then go to your creditors. The Official Receiver may also request that you make contributions to your debt from your income; this will be reviewed and will be based on your ability to pay.

If you own your own home regardless of whether its lease or freehold, solely or jointly owned, mortgaged or otherwise, your interest in your home which forms your estate will be dealt with by your trustee. Unfortunately your home may have to be sold in order to pay off your debts, if you have a spouse or children living with you however it's possible for the sale to be delayed until after the end of your first year of bankruptcy to give you an opportunity to arrange alternative accommodation.

You will no longer be required to make payments directly to your creditors; your mortgage lender tends to be an exception to this. If you are in a position whereby you owe money to utility suppliers it's possible that they won't chase the debt but are likely to ask for payment in advance for future services or request that the bills be in a partner's name.

When the Bankruptcy ends

You will be discharged from your bankruptcy automatically after 12 months. This can happen even sooner if the Official Receiver concludes his enquires and once this is done you are released from the debts that you owed at the beginning of your bankruptcy agreement.