Why Should I Declare Myself Bankrupt?

This year has started with a huge credit crunch. Borrowing money on credit cards and loans will get more difficult as the year progresses, and the noose around current borrowers' necks is set to tighten. For many it is no surprise, as last year saw many people sink further into debt that they couldn't afford to pay back. Some the victim of living outside their means, but for others it was necessary living expenses that led them to get into financial difficulties.

The first thing to remember if you are in debt is you're not alone, and you can get help from many free organizations, such as the Citizens Advice Bureau, who deal with situations like yours everyday. Talking about your debt can help you to see things more clearly and make rational decisions on the options available to you; sometimes things are not as bleak as they first appear. Debt is not a problem that goes away and if you are in severe debt due to unsecured borrowing there are things you can do to lighten the load.

Declaring bankruptcy can be one solution to severe financial problems, although it does have very stringent guidelines that have to be strictly adhered to. However, it should be viewed as the last resort and not entered into lightly, as its effects can last for many years. For most people an Individual Voluntary Agreement (IVA) is often the best choice when facing serious financial hardships. When bankruptcy is the only option left, it can be a lifesaver.

The Pros:

• Bankruptcy works because it frees you from crippling debts and let's you make a fresh start.
• It stops the threatening phone calls and letters from creditors.
• A third party takes over dealing with the people you owe money to.
• With bankruptcy you usually pay back less than when using an IVA.
• Creditors cannot suddenly demand that you pay back more money. There is a firm order in force.
• Once you have completed your bankruptcy period and are discharged (usually after one year) you are free of debt and anything left outstanding is written off.

The Cons:

• Loans such as Student loans are not party to bankruptcy ruling and you will continue to owe the money and have to make regular set payments.
• Your home will be sold to pay off your debts.
• Your business will be sold.
• You will have problems renting property due to Bankruptcy clauses.
• You must disclose your status if applying for money totalling more than £500.
• Your details will be published online, in the national and local press for everyone to see.
• Secured creditors must still be paid as they fall outside the bankruptcy order.
• If found guilty of wilfully getting into debt there are other measures that can be taken that can have far reaching effects, often for up to fifteen years.
• Your future credit rating will be affected.

Who Can Declare Bankruptcy?

• A resident of the UK (including Wales). Scotland has its own laws.
• A debtor who is completely insolvent.
• Creditors can have you declared insolvent if you owe more than £750 pounds.
• You can declare bankruptcy yourself.
• If you default on an IVA agreement you can be declared bankrupt.

If, after considering all the information given to you, you still feel that bankruptcy is the option that best suits your circumstances, i.e. you own very few assets and rent rather than own a property, you will then need to file a Bankruptcy Petition.

Be warned, though, there are even costs involved in going bankrupt! There are three charges that you will need to pay, which are:

• A court fee of £120.
• The Official Receiver's Deposit fee of £250.
• And a mere £7 to swear the Statement Of Affairs.
• Total cost of going bankrupt: £377.

Take debt seriously and consider all your options before jumping in. Bankruptcy is a serious step to take.

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