Bankruptcy is a way of dealing with debts when you don’t have any available money to pay. Bankruptcy makes you free from debts within 12 months and ensures any assets you have are shared evenly amongst your creditors.
Once you have received your discharge then you are totally debt free subject to some limitations.
Bankruptcy should only be considered when an individual cannot pay their debts. If you have no or little disposable income then bankruptcy may simply be your only option. Being made bankrupt for the first time generally mean you will receive your discharge one year after the date of the bankruptcy order, or even less than a year in some cases.
It is always important you seek professional advice before declaring yourself bankrupt. It may seem very appealing to think you can be debt free in 12 months especially if you have a high level of debt, but as mentioned earlier, there are some drawbacks to bankruptcy which you need to be fully aware of.
Anyone can be made Bankrupt, including individual members of a partnership. People associate bankruptcy with seizing their assets which is not strictly true. Essential items which you use for day to day living are allowed to be kept. Only extravagant items such as an expensive car that will be advised to be downgraded. The official receiver decides on what you do and do not keep. Those assets that the Official Receiver takes will be sold to first recover the costs of the bankruptcy proceedings and then repay the creditors.
The Trustee may have to sell your home in order to realise your beneficial interest and help repay your creditors. Your beneficial interest in the property is the amount you will usually receive from the sale proceeds.
For instance, this will usually be the amount after:
- The amount outstanding on the mortgage is repaid
- Your partner is paid their half of the sale proceeds if it is a joint mortgage
It may be possible to put off the sale until the end of the first year after your bankruptcy so that you have time to make alternative housing arrangements. This is time you may be granted if you have a partner or children living with you.
If you do not wish to lose your home you may be able to get someone to buy your interest. There may also be exceptional circumstances where the court will not order the sale of the property.
If you are considering bankruptcy and you own a property then seeking bankruptcy advice will answer any questions and help you decide what is best for your circumstances. It may be that an IVA is a more suitable solution that will allow you to keep your house.
