Bankruptcy is a declaration that you are unable to reasonably pay off your existing unsecured debts. Once you have declared bankruptcy you
will no longer need to interact with your creditors. They will no longer be able to take court action against you and you will no longer be bombarded with threatening letters or phone calls from those that you owe money to.
A bankruptcy order will usually last a year, after which your existing debts will be written off and for all intents and purposes you will be able to start over again financially. This may all initially seem a good thing.
Though declaring bankruptcy will allow you to get yourself out of insurmountable debt – there are serious implications when it comes to things like your possessions and credit rating.
If you declare bankruptcy:
- You will not be able to act as a Director of a company, or manage a business without informing those you do business with that you are bankrupt
- You will not be able to borrow more than £500 without informing the lender of your bankruptcy
- Most of your assets will be sold in order to raise money to pay off your debts
- Your bank and credit cards may be frozen at the discretion of your bank – you will be able to access money that is deemed necessary to purchase food for example
- If the only way to raise the necessary funds is from the sale of your home the trustees may do this
- Bankruptcy can seriously affect future employment prospects – certain industries will not allow those that have been made bankrupt to work in them
- If you own a business in all likelihood it will be liquidated, any assets will be sold, and the staff laid off
- The trustee will decide whether your ‘spare income’ needs to be used to contribute towards the repayment of your debts and you will be required to enter into an Income Payment Arrangement (’IPA’).
Once the bankruptcy has been discharged most of your debts will be written off – with exception of any debts that arise from fraudulent activity.
Should I declare bankruptcy?
This is not an easy decision to make as bankruptcy is quite a severe form of insolvency. As it is declared publicly you will lose almost all of your assets and it will be a matter of public knowledge which could impact on those around you such as your family.
Ultimately some people are left with little choice when it comes to bankruptcy. If you’re potentially facing bankruptcy or are considering it as a route to dealing with tax owed to HMRC talk to us. The team are working with a number of clients who have needed ‘time to pay’ arrangements negotiated with HMRC to avoid bankruptcy, particularly when it comes to settlement of past tax planning.
