Over the course of the recession the number of individuals considering bankruptcy as a solution to dealing with debt crises has grown dramatically, but what would it mean for you, your partner and your family?
Bankruptcy has always had a negative stigma attached to it but, for many individuals struggling to pay their debts, it can seem like the last available option. Whilst this is, in fact, often not the case it does have some advantages over the other available options. For instance, a bankruptcy order normally ends after 12 months (although it can end sooner in certain cases). After this period most debts a bankrupt had at the date the order was made are deemed satisfied and the bankrupt has effectively wiped the slate clean.
Furthermore, a bankrupt does not automatically lose everything; they are allowed to keep the tools of their trade, their clothing and many basic items that they and their family require to satisfy their basic needs. A bankrupt is also entitled to retain any salary they make during the period of their bankruptcy.
However, for every advantage, there is always a disadvantage. For example, where the bankrupt’s salary exceeds a sum which is sufficient to satisfy theirs and their family’s reasonable needs, they may be ordered to pay the excess into the bankruptcy estate to cover some of their debts. Moreover, such payments can continue for up to 2 years after the bankruptcy has ended.
For many, their greatest concern relating to bankruptcy is the uncertainty as to what will happen to their home, both in the short and long term. In cases where the bankrupt’s home is jointly owned with another, or where a spouse or dependent children live with the bankrupt, the needs of those residing in the home will be considered and the Court has the power to prevent any sale.
However, after 12 months the needs of those living with the bankrupt are given less weight and the likelihood of the home being sold dramatically increases in cases where the debts owed are substantial. Also, where the bankrupt does not live with a spouse or any dependent children their home may be sold immediately.
Whilst the loss of your home is only likely where there are significant debts, there are other disadvantages to bankruptcy. For example, being declared bankrupt will affect your credit rating and make it very difficult to get future credit cards, loans or mortgages. In addition to this, any significant assets – such as cars or furniture – can be sold or sold and replaced with cheaper versions.
As well as this, in cases where the bankrupt is found to be to blame for his situation – i.e. reckless spending – restrictions may be put on the individual for up to 15 years. These include not being able to obtain credit above a certain value without declaring the fact they were bankrupt.