Bankruptcy – Everything You Need to Know About This Type of Debt Solution
In situations where an individual is tied down with significant debt obligations and no source of income, they can feel there is almost no way out. This article will show you everything about bankruptcy loans, how it can help, and why it is right for you. So, keep reading.
What Is Bankruptcy?
Bankruptcy is a type of insolvency that allows you to manage your debts. It is a legal procedure that will enable you to write off debts that you cannot longer repay. It can be filed when a person or an organization becomes insolvent and cannot pay back to their creditors, and it may require the selling of some assets.
How Does Bankruptcy Work? Bankruptcy and Insolvency
Bankruptcy is a legal process in which a judge and a court trustee review the assets and liabilities of individuals, partnerships, businesses, and corporations whose debts have grown too large for them to pay.
The court decides whether the debts are discharged, which means that people who owe are no longer legally obligated to pay their creditors. But the court may also dismiss the action if the
person or business has sufficient assets to pay their debts back. This might require selling some of the capital and keeping only the remaining after having paid the lenders the sums owed.
Is Bankruptcy Right For You?
The good thing about Bankruptcy is that there is no specific number of debts to apply. If the total number of unsecured debts accrued is more significant than your income, assets, or value of things you own, then Bankruptcy could be the best option for you. Still, weigh your alternatives and be sure to seek the best bankruptcy advice like the ones we offered in Debt Management Professionals. Our legal experts can guide you and walk you through the whole process in the most confidential and professional way so you can decide which is the best debt solution for you, you might even be able to write off some of your debts.
Bankruptcy Example
Bankruptcy is an excellent solution to bounce back from debts. In the table below, we show you the comparison between Bankruptcy and an IVA.
Take a look at the table below:
| PURPOSE | BANKRUPTCY | IVA |
| Do creditors stop late payment charges? | YES | YES |
| Will creditors be prevented from harassing you? | YES | YES |
| Can a homeowner retain their houses? | SOMETIMES | YES |
| Can I apply for the solution myself? | YES | NO |
| Can any debt be left out? | NO | NO |
| Are debts written off? | YES | YES |
Case Study
Ken and Barbara are a couple who took out a home equity loan that was secured by their home. At that time, it was easy to borrow more than the value of their property.
They also used the credit to pay for day-to-day needs and supplement their income. They generally paid the minimal sums required monthly, which was easy for a while. Still, as interest and charges accumulated, it became increasingly difficult to keep up with the incoming payments despite making monthly returns of £300. The debt did not appear to be decreasing, and with other demands, it became even bigger.
They had been in a debt management plan for 6 years; however, their home was already in negative equity. Unfortunately, Barbara lost her managerial status at her workplace. Her income also plummeted, and she was reduced to receiving only a job seeker’s stipend. The couple discovered that they couldn’t make even the smallest payments to their secured and unsecured creditors. In total, they had roughly £115,000 in debt, which would lead to possible shortfalls.
They then sought a debt advisor for bankruptcy advice, like the ones you can also access in debtmanagementprofessionals.net. The advisor calculated all financial information on their assets and debts plus income and expenditure and helped them apply for Bankruptcy.
All their debts were covered by Bankruptcy, including personal credit cards, loans and, business debt. The portion of their mortgage and the secured loan could not be paid off, so the house was sold. They moved into rental housing as their home was sold, and they were not compelled to pay income contributions because they had no surplus income after deducting their acceptable monthly expenses. They were discharged after a year and even though this seems tough, it has saved the couples years of stress and mental pressure, so now they have peace of mind to start over again and save for their new home.
What Is Covered With Bankruptcy?
In Bankruptcy, a good number of debts are covered. However, there are some non-dischargeable debts. Non-dischargeable debts are debts that Bankruptcy cannot eliminate so they won’t qualify to be added into the bankruptcy and insolvency register. In the table below, we show you the most common debts covered and excluded from Bankruptcy.
Take a look at the table below:
| DEBTS COVERED | DEBTS EXCLUDED |
| Credit card debt | Alimony |
| Medical bills | Child support debts |
| Unpaid utilities | Accident incurred debts e.g. vehicle accidents |
| Personal loans | Certain types of taxes |
| Personal liabilities on secured debt e.g. car loans | Student loans |
| Phone bills | Debts not listed in the bankruptcy |
| Some kind of tax debts |
Costs
The only money required in most cases is the fee for court hearing and approval. The applicant filing for Bankruptcy frequently pays the proposal fee, which helps fund the court system and related bankruptcy cases. The cost can be eliminated for anyone who earns less than 150 per cent of the government’s poverty requirements. The price of declaring Bankruptcy is estimated to be £700; however, if a solicitor is used in the process, the cost may rise.
Pros and Cons of Bankruptcy
The best part about Bankruptcy loans is that when done right, they could give you the opportunity for a fresh start. But there are downsides. The table below illustrates the pros and cons of bankruptcy debt solution.
Take a look at the table below:
| PROS | CONS |
| Interest on debts could be frozen | Could lead to the liquidation of certain assets e.g., cars, houses |
| Creditors are restricted from chasing you | Credit rating is negatively affected (it stays on for up to 6 years) |
| Secured debts are also covered | Discrimination (some employers shy away from employing people who are bankrupt) |
| Offers a fresh start | Your status will be published publicly on the bankruptcy and insolvency register |
| Protects you from any legal action of creditors (through insolvency) | If you earn enough, you could still be charged to make monthly payments |
Do You Qualify?
Although it’s an excellent way to relieve debts, it comes with some stigma, and Bankruptcy isn’t for everyone. It is important to always weigh alternatives before opting for bankruptcy and insolvency.
However, if this seems the best option, certain boxes should be checked.
You are eligible for bankruptcy if:
- You are 18 years old or older
- You are a resident of the United Kingdom
- You see no other way of paying your debts.
- It’s doubtful that your situation will improve.
- You live or work in England or Wales or have done so in the last three years.
- You don’t live permanently in another European country.
FAQ’s
What is Credit Rating?
When applying for a loan or other type of credit, the creditor has to decide whether or not to lend to you. Creditors use different criteria to help them decide whether or not you are a reasonable risk, including a credit rating they work out from your credit reference file.
Three credit reference agencies keep track of your credit history, which includes how you’ve handled existing bank accounts and credit obligations, whether you’ve had your home repossessed, and who you’re financially tied to. When you ask for a loan, the credit provider will check your credit report to determine how risky lending to you is.
What is a Voluntary Bankruptcy Petition?
Instead of being forced to, a Voluntary Bankruptcy Petition is a type of Bankruptcy in which an insolvent debtor asks to the court to declare Bankruptcy for him because they are unable to pay their debts.
How Can I Check My Credit File?
You can find out what information the credit reporting companies have on you and fix any inaccuracies. To do so, contact any of the major credit reference companies and request a copy of your credit file.
Can I Keep Current Or Old Credit Cards After Filing for Bankruptcy?
Your credit card provider will ultimately decide whether or not you can maintain your credit card after you file for bankruptcy. The firm will cancel your card if you have a balance on it that you are trying to pay off in bankruptcy. Even if you had no outstanding amount with the company before bankruptcy, the company might choose to close your account. Furthermore, suppose you file for bankruptcy with a zero balance on one account to maintain that card, your other creditors may question the validity of your filing.
Will Bankruptcy Be Recorded On My Credit File?
Your bankruptcy will be recorded on your credit report. If you asked for credit, this would hurt your chances of getting it because it would demonstrate you’ve had trouble making payments in the past.
The note will remain on your file for six years after you file for bankruptcy, which means you may have to wait a long time to get credit again. For several years, this might make establishing a business, getting a mortgage, or obtaining any other type of credit extremely difficult.
NOTE: You may also find it challenging to create a new bank account after you’ve been declared bankrupt and for a while after you’ve been discharged.
You can’t receive credit for more than £500 while you’re bankrupt unless you tell the creditor about your bankruptcy. A criminal offence would be committed if this were done. If you are the subject of a bankruptcy restrictions order (BRO), this regulation will apply if the BRO is in effect.
Do Couples Have To File For Bankruptcy Together?
No, you and your spouse do not need to file for bankruptcy at the same time. Except you and your spouse are both responsible for the debt, which in that case you may wish to file for bankruptcy together. If you and your spouse co-signed a debt, it’s possible that you’re both responsible for it. If you bought a car together, for example, you might have both signed for the loan.
Even if you did not “co-sign” for the debts you and your spouse accrued during your marriage, you and your spouse are jointly liable for them.
How Can I Avoid Personal Bankruptcy As A Business Owner?
If you haven’t already, you should consider incorporating your company. In comparison to a sole proprietorship, a corporation will provide additional security. Because your corporation would be a separate entity from you and your stockholders, business creditors would have to go for your business assets.
Disclaimer: Consult an attorney for legal guidance.
Do I Need To Go To Court To File For Bankruptcy?
You won’t need to go to court unless there are concerns between you and your creditors that cannot be handled amicably. You must attend one meeting, but it will not be held in a courtroom and will not be presided over by a judge (in fact, the judge is prohibited from being there). This meeting typically takes place between 20 and 40 days after you file for bankruptcy. In some cases, you would be expected to attend a second hearing to certify your payment plan, which will generally occur around a month after the creditors’ meeting.
What Happens To My Assets During Bankruptcy?
It depends on the type of bankruptcy you file for. There are limits to how much property one can maintain while still paying off debt, while certain sorts of assets are excluded (for example, your house or car).
What Mistakes Should I Avoid Making Before Applying for Bankruptcy?
Some common mistakes you should avoid are;
- Lie about your assets
- Not consult legal experts
- Give assets to family members
- Not doing enough research