Decide if Bankruptcy is Appropriate
Before applying for Bankruptcy you must decide if it is appropriate for you. There are a number of factors to consider.
- How much can you pay towards your Debts?
- What will happen to your home?
- How long does bankruptcy last
- Will your job be affected?
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How much can you Pay towards your Debts?
If you cannot afford to make payments towards your unsecured debts Bankruptcy could be an ideal solution. Once bankrupt you do not have to unless your circumstances improve.
Having said that you will need to provide details of your income and expenses. If you do have disposable income you will be required to pay this towards your debts for up to 3 years.
Where you are asked to make payments these can be reduced if your income subsequently falls. If you lose your job the payments stop and you are likely to pay nothing more towards your debts.
If you can make reasonable payments towards your debts each month you should also consider the alternative debt solutions including a DMP and IVA.
Is Bankruptcy Appropriate if you are a Home Owner?
As a home owner going bankrupt does not mean you automatically have to sell your property. However it is important to understand the potential risks.
How your property is affected will depend on the amount of equity in it. If there is very little you should be able to keep it as long as you maintain the mortgage payments.
However if you have a considerable amount of equity Bankruptcy may not be appropriate. The equity would have to be released for the benefit of your creditors which might mean the property has to be sold if the money cannot be raised any other way.
If you are renting you do not need to worry about your home. Your landlord will not be told and you can remain in the property as long as you keep up your rent payments.
How long does Bankruptcy Last?
Bankruptcy is one of the shortest debt solutions. In most cases it lasts for just 12 months. After this time you are discharged and your unsecured debts are written off.
If you are asked to make payments towards your debts you will get an IPA (Income Payment Order). This lasts for 3 years from the date it starts. As such you might continue paying after you are discharged.
The record that you have been bankrupt remains on your credit file for 6 years. During this time you will find it difficult to borrow more money or get other types of credit.
You will not necessarily have to wait for 6 years to get a mortgage after bankruptcy. There are lenders who will consider you 3 years from the start date.
Will your Job be Affected by Bankruptcy?
Most jobs are not affected if you go bankrupt as your employer is unlikely to find out. You can use this solution even if you are a member of the police or armed forces.
There is no reason you cannot continue working on a self employed basis. You will normally be allowed to keep the tools you use to carry out your job including your work vehicle (even if it is worth more than £1000).
Having said that there are a number of roles that you cannot do while you are bankrupt. These include acting as a company director or a pub landlord.
Contrary to popular believe bankrupty is a relatively private debt solution. Your employer will not be told and so it is very unlikely they will find out about your circumstances.
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