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Bankruptcy Advantages and Disadvantages

Bankruptcy Advantages and DisadvantagesBefore making the decision to go Bankrupt it is useful to understand the main advantages and disadvantages. When considering these bear in mind that Bankruptcy affects different people in different ways depending on their circumstances. Something that may been considered an advantage or disadvantage for one person might not be particularly important for another.

The Advantages of Bankruptcy

1. Fast to set up
In order to go Bankrupt you need to complete the necessary application forms and then present these at your local County Court together with the bankruptcy fee. Given everything is in order you will be made bankrupt on the day. From that point onwards you are then legally protected from your creditors. They cannot take any further action against you to attempt to collect their debt.

2. Lasts 12 months
For most people Bankruptcy will last just 12 months. After this time you will be discharged and no longer tied to the restrictions of being Bankrupt. It is possible that this period could be extended but this is rare. It generally only happens if you do not co-operate with the Official Receiver.

3. If you have no equity your home may not be affected
Home owners often think if they go Bankrupt they will be automatically forced to sell their home. This is not the case. Your property is only at immediate risk if there is significant equity in it. If there is little or no equity the risk is minimal as long as you take the right advice and maintain your mortgage payments.

4. No monthly payments if you have no disposable income
Once you are Bankrupt you will only have to make payments towards your debts if you can afford to. If you use all your income to pay for your reasonable living expenses you will not have to make payments to your creditors. Any payment you can afford to make will last for 3 years. This is less than most of the other debt solutions you could consider.

5. Debt written off
After your assets have been realised (if required) and an income payment agreement has been paid (if one is set up) any outstanding debt is written off. If you have few assets and no disposable income it is likely that the majority of your debt will be written off.

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The Disadvantages of Bankruptcy

1. Your property may be at risk if there is equity in it
If you are a home owner it is very important to get expert advice before going bankrupt. If there is little or no equity in your property it will probably not be at risk. However if there is significant equity in your home the Official Receiver will be forced to realise this for the benefit of your creditors. This could mean the forced sale of your home if the equity cannot be raised in any other way.

2. Your car might have to be traded in
Once bankrupt you are allowed to have a car if you need one. However the value is normally not allowed to be more than £1000 (this might be slightly higher in Scotland and Northern Ireland). If your car is worth more than £1000 the Official Receiver may force you to sell it, buy a cheaper one and give them the remaining funds. If your car is worth more than £1000 you need to get expert advice about this before you go bankrupt.

3. Credit rating affected for 6 years
Bankruptcy is recorded on your credit file for 6 years. This means that even after 12 months when it is over your credit rating will continue to be poor. There are things that you can do to try and improve your credit rating once you are discharged. However Bankruptcy will make getting many forms of credit including applying for a new mortgage much more difficult for at least 3-4 years.

4. Restricted Living Expenses budget
Once you are bankrupt you will be expected to live within a restricted living expenses budget. The Official Receiver (OR) will review your living expenses in detail. You will always be left with enough to pay your priority debts and essential expenses. However you will be expected to pay any surplus income towards your debts.

5. Recorded in a Public Register
The fact that you have gone Bankrupt is a matter of public record. As such your name and details will be recorded in the Insolvency Register until you are discharged. If you live in England, Wales or Scotland Bankruptcy will not be advertised in your local newspaper. However in Northern Ireland a notice is still published in the Friday edition of the Belfast telegraph.

6. Some jobs are affected
The majority of jobs are not affected at all by Bankruptcy. However there are some roles that you will be prevented from carrying out for the duration of your bankruptcy. These include Company Directors, Accountants and Solicitors. Having said that this restriction only applies while you are a bankrupt person which will normally be just one year.

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