Personal bankruptcy sounds drastic and, to an extent, it is big step to take. However, it is not the end of the world and, in certain circumstances, it is an effective means of clearing yourself of many debts.
This is at a time when personal insolvencies in the UK have hit a seven-year high.
As specialist insolvency practitioners, we know how important it is for individuals to consider all their options when it comes to dealing with debt, so that they can find the right solution. Bankruptcy may be one of these options.
People are often reluctant to consider bankruptcy as an option because there are various myths surrounding it. Here are three of the most common ones.
1. “Bankruptcy Represents Personal Failure”
Personal bankruptcy does not represent a character flaw. It is not an admission of failure.
Rather, bankruptcy is a tool for taking control of your finances.
Bankruptcy does not necessarily arise from poor financial management. Many people face unexpected or difficult financial pressures in their lives, sometimes as a result of life events, such as long-term illness.
In fact, many people in financial difficulty could be better off if they did file for bankruptcy. The problem can be that because they perceive there is a stigma attached to it, they leave making the decision much later than they should.
2. “You Will Lose Everything If You Go Bankrupt”
One of the perceived risks of personal bankruptcy is that it means you will be left with nothing.
Will you automatically lose all of your possessions?
The answer is no. It is about the information you submit. For example, if you need your car or other items for your job, then you will not lose them.
It is true that all your property is treated as part of your bankruptcy estate, but there are provisions to exclude certain possessions, including bedding, furniture, clothes, household equipment and provisions.
Whether you keep your home will depend on if selling it is a requirement to pay your bankruptcy debts. Circumstances vary, and there are situations where having dependants living in a home will defer a sale; or where someone buying your share of a property will prevent it having to be sold to a third party.
3. “Personal Bankruptcy Puts Your Financial Future at Risk”
Bankruptcy can feel like an enormous change at the time, but it does not seal your financial fate forever.
You can work when you are bankrupt. There are some exceptions, such as not being able to act as a company director, and you are barred from certain jobs. However, it is in your trustees’ and creditors’ interests for you to be able to continue to earn money.
You will, however, have restrictions on obtaining credit and to trade in business.
12 months after bankruptcy, most of your debts are formally written off, and normally your bankruptcy is removed from the Individual Insolvency Register after 15 months.
Personal bankruptcy can have a big impact on people, but it can also be the thing that helps them deal with debts that are otherwise threatening to overwhelm them.