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The Advantages and Disadvantages of Bankruptcy

 

Going bankrupt is not something than anyone wants in their lives, but unfortunately it is a reality for many people throughout the country, particularly after the problems caused by the recession in 2008. Of course, going bankrupt is the absolute worst case scenario. There are other types of debt relief you can try first, especially if your debts could be somewhat manageable. These are DMPs (Debt Management Plans) and IVAs (Individual Voluntary Agreements). Both of these work to lower the debt payments you have to make, but if your debts are very high and you can’t make the repayments, then bankruptcy may be your only solution.

Bankruptcy can be applied for by yourself or by someone you owe money to. If you’re applying for bankruptcy yourself, then you may have to give evidence to a judge that it’s been recommended to you by a debt help charity. If you’re having serious money problems then charities like this should be your first port of call, as they can help you sort out a plan of action.

The advantages

If you’re in a huge amount of debt and it’s affecting your life, then going bankrupt can take the pressure off as you will not have to deal with the people you owe money to any more. This will all be done by a person called an Official Receiver, who will process your bankruptcy. Most of the court cases held against you (if any) will be stopped but bailiffs employed by the companies you owe may still be able to take your belongings from you.

Although you will lose many things that you own, there are things which you’ll be allowed to keep. This will include a small but reasonable amount of income to live on and some essential household items.

One of the biggest advantages of bankruptcy is that your debts will be largely written off, giving you the chance to begin again once you’re out of the bankruptcy process. This could take as little as one year, but may be longer. You can start again with a clean slate once it’s all been processed, although you may find that being bankrupt could hinder you in certain areas.

The disadvantages

There are many obvious disadvantages to becoming bankrupt, such as the stigma attached to it and the effect it can have on your mental health. Although it’s a way to get rid of debts, going bankrupt will cost you money – around £700 – and will mean that you lose a lot of your possessions, including your home in many cases.

You won’t be able to keep your bankruptcy private, as your name will appear on the Insolvency Register, which is widely available on the internet. Your local paper may also publish the details if you are well known in your community or if there are exceptional circumstances.

You won’t be able to apply for any credit at all whilst you are in the bankruptcy process, and you will find it very hard to borrow money afterwards too, due to the bankruptcy being part of your credit score. You may also lose your job, as it is policy within some professions to stop employing those who have gone bankrupt.