Bankruptcy is a solution for individuals and businesses who fail to repay their debts. Filing for bankruptcy in the United Kingdom can give you a fresh start in managing your finances. But you need to consider its after-effects too.
If you can’t determine whether bankruptcy is a good option, stick with us. In this article we’ll explain the legal process involved with bankruptcy, as well as the pros and cons to help you rid your debts.
What is Bankruptcy UK?
In the UK, Bankruptcy is a legal procedure for people (or companies) who can no longer pay off their debts. It is a way to seek relief from creditors to save themselves from further financial burden. With managing debt, bankruptcy should be considered as the ‘last resort’ option. As such, we always recommend checking out some of the other debt solutions before progressing with bankruptcy. If you are unsure on what is best for you, speak to a debt advisor by using our free solution finder.
While filing for bankruptcy, officials assess all your financial assets and compare them with your debt. Non-exempt assets are sold off to pay back the amount of debt. After the completion of the bankruptcy process, almost all unsecured debts are discharged. It means you are no longer under the burden of those debts.
Pros of Bankruptcies in the UK
Here are some advantages you will get by filing for bankruptcy in the United Kingdom.
Debt Relief
Bankruptcy can be your fresh start to let go of all unsecured debts. This includes utility bills, council tax arrears, rent arrears, tax debts, court judgments and more. Bankruptcywill let you move on to a stable future without the burden of debt.
Moreover, it also acts as a chance to pay off debts in a certain time. You will be free once the bankruptcy finishes – providing you a finish line to your current financial situation.
Protection from the people you owe money (Creditors).
It protects you from the continuous nagging from your creditors. If you are annoyed by hundreds of questions, calls and letters from creditors and find it difficult to manage them, bankruptcy can help you.
The bankruptcy process will legally ban your creditors from contacting you. So you will no longer be bothered by them.
Achieving Financial Stability
One of the main advantages of bankruptcy is achieving financial stability. Bankruptcy freezes your high-interest bills so that you can focus on enhancing your credit and building up your financial security in the long run.
Credit Score Rebuild
Bankruptcy will stay on your credit score for 7 – 10 years. However, this does not mean that you cannot improve your credit score in this time. Bankruptcy allows you to start afresh with your credit to help build a stronger financial future.
Regain Possession Of Assets
If you file for bankruptcy, you have the legal right to recover any assets lost due to creditor proceedings, such as financed vehicle repossession or house foreclosure. Additionally, creditors are barred from pursuing any debts that have been paid off in bankruptcy.
Reasonable Initiation Cost
Compared to the other available debt relief options, costs associated with bankruptcy are comparatively less as a lot of the high interest repayments are wiped out.
To use bankruptcy as a form of debt relief it will require an initial fee of £680. You have to pay this amount when you decide to apply for it. There is an option to pay in instalments. However, paying the whole amount before applying is necessary. If you no longer have enough to pay for bankruptcy debt relief, you can seek help from a debt charity or a search for grant. Once this fee is paid, bankruptcy will help you save money, enabling you to repair your credit score.
Cons of Bankruptcy UK
We’ve taken a look at the advantages of entering bankruptcy, now let’s look at the cons associated with it:
Public Record Of The Bankruptcy
One of the drawbacks of filing for bankruptcy in the United Kingdom is the public record status that is generated. This indicates that anybody, including your employers, and landlords, may find out about your bankruptcy.
This may damage your credit score and make getting credit and securing employment in the future more challenging.
Company Directors
If you are a company director within the UK and file for bankruptcy, you could be subject to other restrictions. These include being prevented from managing a limited company or acting as a company director for a while. This could have implications on your business.
Your Credit Score Will Reflect A Bankruptcy Status
Bankruptcy will negatively affect your credit score. The bankruptcy will remain on your credit score for 6 years.
Difficulty Obtaining Loans
Bankruptcy may make it more challenging to get new loans. Lenders could consider you a high risk and decline your future loan applications. Additionally, you could be vulnerable to higher interest rates if you can get a loan.
You need to consider all the above repercussions very seriously before filing a bankruptcy. We advise you to seek professional help for this. With our free solution finder, you can know whether bankruptcy is the right solution for you.
Cost of Bankruptcy
In the United Kingdom, the expense of bankruptcy is approximately £680 for a bankruptcy petition and £90 for the adjudicator’s compensation. You will need to pay this in a lump-sum instalment at the start of the bankruptcy procedure.
If you cannot afford the fees, there are ways for the fee waiver or reduction. You can seek help from the free advice options for this. You can check for grants by using the turn2us website. (https://grants-search.turn2us.org.uk/)
Conclusion
In conclusion, filing for bankruptcy can be complicated. Deciding for bankruptcy is a stressful decision that should be decided alongside professional help. For this purpose, you have to consider ALL the Bankruptcy pros and cons UK.
You can get freedom from your debts, but it has serious consequences. So, take into account all aspects of bankruptcy before deciding. If you are unsure on where to start you can speak to a debt advisor using our free solution finder.
