Maureen is an experienced Insolvency Manager and is an expert in personal debt solutions and debt payment programmes.
She deals with challenging, complex personal debt cases with professionalism and patience.
When Is Bankruptcy A ‘Good’ Option?
‘Bankruptcy’ is one of the most loaded terms in the English language and the connotations are all bad.
People feel bad about bankruptcy because they feel they are not honouring their obligations or that they are reneging on agreements with lenders. However, this is not really seeing things as they truly are.
No-one sets out with the intention of piling up debts and then declaring themselves bankrupt to get out of them – or at least only a very small number of people do.
The vast majority of people are simply caught up in a situation that has got beyond them and find themselves unable to deal with the debts they have accumulated.
Sometimes, and this is frequently the case, other factors have come into the equation and debts have arisen through a change in circumstances through separation/divorce, loss of employment or illness. However your debts have arisen, you are still left facing the reality that you simply cannot afford to pay or even to service your debts.
Each bankruptcy case is different – as are the reasons why people are compelled to go down this route, but bankruptcy can be a good way forward for people in certain situations.
Here we explore just what they are and why bankruptcy might be something positive for you.
What are the causes of bankruptcy?
The causes can be diverse:
- A family may find itself with much-reduced income when the main breadwinner loses their job;
- People can find that their partners have racked up huge debts on a credit card that is in joint names;
- Or a bank account overdraft in joint names might have been maxed out.
Going bankrupt in these circumstances can really provide a way out of an otherwise impossible situation. It can also mean that you are able to take care of your family by dealing with the financials that could overwhelm your family circumstances.
Warning signs that may mean you should consider bankruptcy
Warning signs that you are nearing or in a position where you should consider entering bankruptcy include:
- Regularly paying a credit card by taking out a cash advance or transferring credit balances. Cash advances entail high-interest rates and add to your debt burden. Transferring credit balances is unlikely to be at competitive rates if you have been missing payments and may not even be an option.
- Missing payments consistently: this will have lasting and damaging repercussions for your indebtedness. Many lenders will raise your interest rates to the high 20s in terms of percentages. This makes it even less possible that you will be able to pay anything towards your underlying debt: you will almost certainly simply end up paying interest. Worse still, your monthly minimum payment will also rise as a result of such things. Trying to repay unaffordable debt at high rates of interest is a losing game and it can be difficult, if not impossible, to renegotiate the rate with the lender. The irony is that people who can least afford such high rates often end up having to pay them to lenders that include credit card companies.
- Having to take on another job to try to deal with your debt. This can sometimes be an effective way of dealing with your debt, but sometimes the debt mountain can be too hard to climb without having to work hours that are going to undermine your health and family relationships.
- Having to put everyday items on your credit cards because you have no cash to pay for groceries, utilities and other everyday items. However understandable, this is simply making matters worse as, if you are in this position, you will almost certainly be making only minimum payments to your credit cards – and ramping up your debt and debt interest. You can soon find that debt repayments are taking up more and more of your income – and all while your debts go from bad to worse.
- Being in a position where your work is beginning to suffer. Like any other big problems, debt can also affect your performance at work and lead to problems there. A problem like debt will not resolve itself and you may not be able to resolve it on your own.
If you recognise the above problems, then you should talk to an Insolvency Practitioner such as TC Debt Solutions to explore the options open to you. These will include bankruptcy, but not be limited to it: it all depends on the nature and extent of your debts.
10 good reasons to consider entering bankruptcy
1. Bankruptcy can protect your assets
Bankruptcy can safeguard money that you need for the future. It can help to protect your retirement. Trying to avoid bankruptcy can be like stealing your future as you use up money now that you could invest for your long-term future.
Going through bankruptcy will help you to do this by getting to the heart of your problem – the inability to pay your debts…and dealing with it quickly.
Depending on the level of your debt and the amount of equity that you have, it may also be possible to protect assets such as your home and car (depending on its value).
2. It’s easy to qualify
Barriers to entry are low. If you live in Scotland, you could qualify for bankruptcy if you have £3,000 (£1,500 under Minimal Asset Process) or more of unsecured debt and are unable to pay them on their due date.
The application fee to the Accountant in Bankruptcy (AiB) is just £200 and you can make an application, provided that you have not been made bankrupt within the past 5 years.
3. You can still have banking arrangements
If you enter bankruptcy, you can still operate a current account. However, your current bank may freeze or close any account you currently hold when you declare bankruptcy and they may withdraw any overdraft facility.
The best advice would be to get a bank account opened with a bank that you do not owe any money to. Changing banks really can be a good idea in these circumstances.
4. People should not find out
It is highly unlikely that anyone will find out if you don’t tell them yourself. Details of bankruptcies are recorded in the Register of Insolvencies (ROI) and are available online, but people are unlikely to consult it without reason.
5. It will affect your credit score – but you can change that in a relatively short time
One of the chief objections that people raise to the idea of becoming bankrupt is the thought that it will have a disastrous effect on credit scores. The truth is that, by the time people enter bankruptcy, their credit scores have already taken a hammering.
Entering bankruptcy should be seen as dealing with your debt quickly and effectively so you can eventually rebuild your credit profile. One of the really good things about bankruptcy is that it is a quick solution for dealing with otherwise insurmountable problem debt.
6. It is a quick way to become debt-free quickly
Entering bankruptcy means that you will generally be discharged after about 12 months. It’s a quick way to remove your unsecured debts and re-build your life. However, you will be under an obligation to pay contributions for 48 months.
7. You don’t have to deal with your creditors
Your Insolvency Practitioner will complete the Debtor Application Pack that has to be submitted to the Accountant in Bankruptcy (AiB).
Your Insolvency Practitioner will usually be appointed by you as your trustee who will deal with all your creditors for you, taking control of your assets and paying back your unsecured debts as far as possible. The vast majority of your debt will almost certainly be written off.
8. You can gain control and secure your future
Bankruptcy allows you to gain control of your life. For example, in trying to stave off the inevitable, some people raid their pension funds. This may be a bad idea: you are going to need these funds, and going bankrupt will mean that you are no longer using your future to try to resolve your present.
It is vital not to spoil your future: this is why bankruptcy should be one of the options that you consider.
9. Creditors can no longer take action against you
Once you apply for bankruptcy, creditors will no longer be able to take action to collect unsecured debts against you. Entering bankruptcy also means that your credit rating could start to improve sooner than it would under other debt solutions.
You will also be able to start living within your means and avoid the same thing happening again: you will not have any credit cards to fall back on.
10. You break the spiral of credit card debt
Entering bankruptcy will break the treadmill of out-of-control credit card debt, which is one of the most demoralising forms of debt. This kind of debt can otherwise stretch years ahead and become impossible to pay back.
Conclusion
Entering bankruptcy is a big step to take and is one of a number of possible options. However, for the right set of circumstances, bankruptcy can be a good option and a path to a debt-free and brighter future.
Free Consultation
We are happy to discuss bankruptcy options with you.
We offer a free initial discussion to find out how we can help. One of our advisers can call at a time suitable for you, or if you prefer, we can meet privately at our offices, your home or at a local coffee shop.
To arrange a free confidential consultation, please contact us today here.
About the author
Maureen Walls