Bankruptcy - The Easy Option?

Incredibly, since the changes in the bankruptcy law in April 2004, debtors are more likely to petition for their own bankruptcy rather than their creditors! You would think that most people who have been threatened with the prospect of being made Bankrupt would be riddled with fear of the possibility. It is more widely referred to as the "Big B" rather than the dreaded word itself. However, is this a thing of the past? Since the changes in The Enterprise Act 2002 took place in April 2004 it would appear a lot more people are inclined to petition for their own bankruptcy as a solution to their debt problems.

It appears that more people are choosing to go for Bankruptcy as they think that within one year of a Bankruptcy order being made, they could be debt free. Unfortunately, things might not be as simple as that and it would be wise to find out what options are available before taking the plunge.

In some circumstances, Bankruptcy is the best option, but that is only some circumstances, not all. Even in Bankruptcy, you are still required to make payments from your income for up to three years, if you have a reasonable surplus. The Official Receiver (OR) also has the period of three years (not one year) to stake his claim on your residential home and if there is any equity in your property within that time period, the Official Receiver is likely to claim it.

Considering Bankruptcy?

For some people, Bankruptcy really is the only way out. There are numerous reasons why people find themselves in this situation. If you know you are unable to repay your creditors; you have no assets and there is no prospect of you making reasonable offers of repayment to your creditors, then petitioning for Bankruptcy could be right for you.

What Happens when a Petition is made?

Petition for Bankruptcy is made in one of two ways. Either you will make a petition yourself at a cost of £450, or your creditor will make a petition against you. If a creditor decides to make a petition for Bankruptcy, they would be responsible for showing that you either could not or would not repay the debt owed to them. Unless the petition was significantly disputed, it is likely that a Bankruptcy Order will be made.

Before the legislation changes in April 2004, if a Court believed that you could afford to make reasonable offers of repayments to your creditors, an Insolvency Practitioner would be appointed to look into your affairs and make a report to see if you were willing to make proposals to repay your debt. Your creditors would then be requested to consider your proposals. This has now changed?

If you make a petition for Bankruptcy, the Court will assume you have taken advice and you know you cannot repay your creditors. Therefore, a Bankruptcy order will be made. However, once the order has been made, an Official Receiver will then look into your state of affairs, and if the Official Receiver believes you do have the facility to make reasonable offers of repayment, they may refer you for a Fast Track IVA.

The cost

In order for you to petition for your own bankruptcy, it will not only cost you £450, but, the process will take up a lot of your time and possibly cause you a great deal of stress. Even after the bankruptcy order has been made the Official Receiver (OR) could decide that a Fast Track IVA would be more suitable. If that happens you have basically lost £450 and caused yourself a lot of unnecessary stress.

So what should you do?

Before petitioning for your own bankruptcy, you should get an assessment of your financial situation. It is definitely advisable to get an assessment done before making a petition rather than an Official Receiver making the assessment after a Bankruptcy Order had been made. Companies such as FCL Debt Clinic can offer you this assessment with no charge! You will be informed of all options that are available and if a more suitable route can be taken in order to avoid the implications of Bankruptcy, this will be advised as another way to resolve your situation.

By Nicola Bullimore