Outlined below are some of the benefits and drawbacks of bankruptcy. It should be noted that bankruptcy is not to be entered into without first having sought professional advice.
There is more to bankruptcy than as a way of finally putting an end to harassing debt collectors and creditors. One big side effect of bankruptcy being that your life is likely to be subjected to intense scrutiny.
These are some of the benefits of bankruptcy:
Relieves the stress caused by dealing with numerous creditors.
Once a bankruptcy order is made, a third party takes over the administration, decision making and payment process of the debts.
Creditors forced to recognise that they must accept less money than is owed.
Debtors typically pay less with a bankruptcy order than with an Individual Voluntary Arrangement.
Once discharged, most debts are written off and creditors cannot pursue them.
Here are some of the drawbacks associated with bankruptcy:
The debtor will lose any realisable assets of value.
If the debtor owns equity in a home, this will almost certainly be sold.
If a business is owned, this could be sold and any employees dismissed.
Bank current accounts can be difficult to obtain.
It is a costly process. All fees for the insolvency service, courts and any trustee are taken out of the debtor's assets.
If trying to obtain credit of more than £250 the debtor must disclose his status as an undischarged bankrupt.
The debtor must allow all his financial affairs to be scrutinised.
Names of those made bankrupt are published in the London Gazette and the local press and can be viewed online at the Insolvency Service website, making them accessible to anyone in the world.
Cannot hold certain public offices, such as MP, councillor or magistrate, or practice certain professions, such as solicitor and accountant.
A bankrupt may not hold office as a trustee of a charity or a pension fund.
A bankrupt is not allowed to be a company director or trade under any other name than the one used at the time of bankruptcy.
The trustee must be informed of any changes in circumstances during the bankruptcy.
Certain debts cannot be written off: fines, maintenance/child support payments, other family court orders, debts to secured creditors, debts from personal injury claims, debts incurred through fraud, debt arising from certain other orders of the criminal court.
Bankruptcy does not affect the rights of secured creditors. Where there are joint debts, creditors can still pursue the non-bankrupt debtor.
Bankrupts found to be blameworthy, culpable or dishonest can be made subject to a Bankruptcy Restrictions Order which can impose the same bankruptcy restrictions, plus some additional ones, for anywhere from 2 to 15 years.
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