If you are facing serious debt problems then you might have or be considering filing for bankruptcy. If this is the case you should be aware of the disadvantages associated with going bankrupt and only do so as a last resort.
In this article we shall discuss some of the main disadvantages of filing for bankruptcy and some alternatives that you might want to consider.
What is Bankruptcy
If you file for bankruptcy you are making an official statement that you are not able to repay your debts. The court will intervene to help you pay some of your debts and erase others completely by arranging for a repayment schedule to be set up for you.
The Disadvantages of Bankruptcy
Bankruptcy carries a social stigma because bankruptcies are reported in the local press.
Once the Bankruptcy Order has been finalised, any businesses that you own will be closed down and your employees will be dismissed.
You may have to hand over your home to your trustee
Your bank and building society accounts will be closed and you have to relinquish your credit cards
Any product that you are in the process of leasing or buying on hire purchase it will be confiscated.
Your employment prospects will be prejudiced.
Bankrupts are not allowed to hold certain public offices.
Bankrupts are not allowed to obtain credit for £500 or above without disclosing their bankruptcy history.
You are only allowed to conduct business in the name in which you were made bankrupt.
You are not allowed to be involved in forming, managing or promoting a company without the courts permission.
Alternatives to Bankruptcy
There are a number of alternatives to bankruptcy although their suitability will depend on where you live and your financial situation.
IVAs are one of the most popular alternatives to bankruptcy. They were introduced via the Insolvency Act of 1986 to help those in serious debt who want to avoid bankruptcy and its disadvantages.
There are no stigmas or penalties associated with an IVA which is partly why they are so popular. In addition:
An IVA enables you to make monthly repayments based on what you can actually afford
Interest on your debt is frozen whilst an IVA is in place
Your creditors are not allowed to contact you whilst an IVA is in place
A portion of your debt is written off completely
You are deemed to be debt free within 5 years
IVAs are a suitable alternative to bankruptcy for those who can afford to re-pay at least £200 a month and who have total debts of over £15,000.
Clear Start, the National Consumer Debt Advice Service offers free IVA advice: Alternative to Bankruptcy