Declaring bankruptcy can sometimes seem like the only option when you or your business is unable to pay multiple debtors.
In many cases, it is the quickest and simplest way to clear an overwhelming debt.
To become bankrupt, you must first apply to the court for a bankruptcy order. You may also be made bankrupt on behalf of creditors who have been hitherto unable to relinquish funds from you. For a step by step guide to becoming bankrupt, this is a good place to start, though it’s essential that you seek specialist advice.
Becoming bankrupt is a highly life-changing instance, and it’s important you know exactly what you are getting into before you make the first steps.
- After declaring bankruptcy, your assets will be seized to pay off your debts. This can be anything from your house to your TV.
- Your name and your details will be published on a bankruptcy register.
- During the 12 month period usually required to free you from bankruptcy, you must adhere to the ‘bankruptcy restrictions’.
The bankruptcy restrictions
These are restrictions put in place after your bankruptcy and must be followed by law.
- You may not borrow more than £500 without first informing the lender of your bankruptcy
- You may not start up or manage a business without the court’s express permission
- You may not act as a director of any company
- You may not take a different name and manage a business
- You may not work as an authorised debt specialist
If you do not follow these orders, you may face a penalty of additional time added onto your bankruptcy period. If your bankruptcy has come about as a result of dishonest behaviour on your part, this time may also be extended.
Is declaring bankruptcy expensive?
Many believe that you can declare yourself bankrupt for free. In actuality, declaring bankruptcy can amount to additional costs.
It is a common misconception that the bankruptcy process is free. Unfortunately, it’s not – there are court costs that run into hundreds of pounds. Services like business recovery from Wilson Field can help people in financial difficulty, and work closely with clients to work out an appropriate affordable solution to their debt problems.
In order to declare yourself bankrupt, you must first pay a fee of £175 to the court. After this, you must pay a total of £525 to the Official Receiver, who will usually act as your trustee.
Your income and surplus income will be assessed carefully, and you will be expected to pay your outstanding debts with this surplus – this does not include the money needed to buy food.
As we talked about before, the restrictions are pretty strict, so this is a last resort solution. Always seek professional help so you can weigh the pros and cons and make an educated decision. There are alternate solutions that are not as extreme as declaring bankruptcy, and could help put your business back on its feet, in exchange for a few sacrifices. Make sure you understand all the implications before going one way or the other.