Decide if Bankruptcy is Appropriate
Bankruptcy is often thought of as a last resort debt solution. Something to do if all else fails. However it should not be considered this way. In fact it is ideal for may people.
To understand whether Bankruptcy is appropriate you need to consider the implications based on your specific circumstances. You need to think about what will happen to your house and car and how much you will have to pay towards your debts.
Which debts are included in Bankruptcy?
It is important to understand which debts can be included in Bankruptcy. If the debts you are struggling with cannot be included it may mean that this solution is not appropriate.
Only unsecured debts can be included. Secured debts such as your mortgage or a car HP agreement normally cannot. You will need to make provision to continue paying these in your living expenses budget.
Is Bankruptcy appropriate if you own your Home?
If you are renting that you do not need to worry about your home if you go bankrupt. However if you are a home owner you will be concerned about whether your property will be at risk. You may be surprised to learn that it is unlikely to be at risk if there is little or no equity in it.
Bankruptcy may not be appropriate for you if you have a considerable amount of equity in your home. If this is the case it would have to be released for the benefit of your creditors. This is one of the main reasons why many home owners are put off the idea of Bankruptcy.
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Is Bankruptcy appropriate if you need a Car?
If you own a car you the way it will be affected if you go Bankrupt will very much depend on its value. If it is worth less than £1000 then you should be able to keep it as long as you need it. However if it is worth more than £1000 you may have to sell it and buy a cheaper one or pay the official receiver the difference to be able to keep it.
What will happen to your Credit Rating if you go Bankrupt?
If you go Bankrupt your credit rating will be negatively affected. The record of your Bankruptcy will remain on your credit file for 6 years. This means that you will find it difficult to borrow more money or get other types of credit during this time.
However your credit rating will not remain poor forever. After you are discharged from Bankruptcy there are certain things that you can do to start to improve your credit rating. By doing these you will eventually be able to borrow again and even get a mortgage in the future.
Will you have to pay towards your debts if you are Bankrupt?
It is important to understand that if you go Bankrupt you may still be asked to make payments towards your debts each month. These payments are based on your disposable income.
Before you make the decision to go Bankrupt you should complete a financial statement. This will include your income and living expenses budget. From this you will be able to work out your disposable income and anticipate what if anything you will be required to pay.
If you have no disposable income you will not have to make any monthly payments at all. However if you do you will be expected to pay this towards your debts for 3 years.
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