Which debts are included in Bankruptcy
It is important to understand which debts can be included in Bankruptcy. If the accounts you are struggling with cannot be included there will be little point in considering this solution.
Most unsecured debts can be included. If these debts are not paid you will not lose any of your property. Common unsecured debts include bank loans, credit cards, store cards, overdrafts and Payday loans. Tax and VAT debts owed to HMRC are also unsecured and so can be included.
Which Debts are not included in Bankruptcy?
Secured debts cannot normally be included in bankruptcy. These debts are secured against property such as your house or car. If you do not pay them the property is likely to be repossessed. The most common forms of secured debts are things like a mortgage or secured loan or a car HP agreement.
If you were to include these debts in Bankruptcy you would risk losing the goods that they are secured against. This is because the payments towards them would have to stop.
BE Tip: Other debts which cannot be included in bankruptcy include things like student loans company debts, CSA arrears and court fines such as speeding and parking fines.
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Can Secured Debt ever be included in Bankruptcy?
If you are struggling to pay secured debts such as your mortgage or car HP then you might think that think that bankruptcy is not for you because they are secured debts. However this is not necessarily the case. If you are prepared to allow the property against which the debt is secured to be repossessed it can then be included.
For example, you may be in a position where you can no longer afford to pay the mortgage on your property. You may be unable to sell because there is little or no equity. In this situation you could stop paying the mortgage and allow the property to be repossessed voluntarily. Any shortfall after the mortgage lender sells the property is unsecured. It can then be included in bankruptcy.
BE Tip: You should not make a decision to allow your house to be repossessed with the intention of then going Bankrupt without first getting advice from Bankruptcy Expert.
Can I leave Unsecured Debts out of my Bankruptcy?
You cannot pick and choose the debts you include in Bankruptcy. All of the unsecured debts that you owe must be included. This can be a real problem if you have borrowed money from a family member or friend which you feel you need to continue to repay.
You will be unable to maintain debt repayments to any unsecured debts once you are Bankrupt. This would be a preferential payment which is not allowed. If you decide to go bankrupt you will simply have to stop paying these debts until you are discharged.
What happens to Guarantor Loans if I go Bankrupt?
Guarantor loans are becoming more and more common. This is the type of debt where you have borrowed money and someone else has acted as the guarantor for you. If you do not pay the debt then your Guarantor will have to do so on your behalf.
Guarantor loans are unsecured loans. As such these debts must be included if you go Bankrupt. The problem with this is that Bankruptcy will only protect you. It will not protect your Guarantor. The loan company will turn to them for payment. If they do not have the money to pay the debt legal action can be taken against them to enforce it.
For this reason if you have Guarantor loans you might have to delay going Bankrupt until these are repaid in full.
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