What is bankruptcy?

Simply put, bankruptcy can occur when an individual's debts are greater than his or her assets. Declaring bankruptcy means an individual is financially insolvent and can be relieved of outstanding debts. It is often considered as a last resort for people with serious and ongoing debt problems.

Key things you should know about bankruptcy

• Bankruptcy usually lasts for a year.
• At the end of the bankruptcy period, most debts are 'discharged' (cancelled) but there are restrictions on obtaining credit and working in certain professions.
• An Official Receiver is appointed to protect your assets and investigate the cause of your bankruptcy.

Should I consider bankruptcy?

If your debts are high and your income is low, it's worth finding out more about bankruptcy. Ask yourself:

• Do I think my financial situation will get better in the foreseeable future?
• Do I own property or other valuable assets?
• Can I realistically expect to repay my debt within a realistic timeframe?
• Do any of the alternative debt solutions look right for me? If the answer to every question is 'no', there's a good chance bankruptcy could be right for you. What are the advantages of bankruptcy?
• You'll know you'll be debt free – and when
• Your stress levels may go down once you know your debt problems are being addressed
• You'll be protected from legal action by your creditors
• You will have no further obligation to your creditors for your current unsecured debt when discharged
• You'll be able to make a fresh start when your bankruptcy is over

How will bankruptcy affect me?

• If you are declared bankrupt, you are no longer liable for any outstanding debts documented in the bankruptcy proceedings. This can give you peace of mind and alleviate stress.
• Your assets will be shared out between creditors and you can make a "fresh start". However, it doesn't come without implications. Read on.

What are the disadvantages of bankruptcy

The Official Receiver can sell any of your assets: this includes your family home, your car and any of your household effects (if they are deemed to be of excessive value).

You will be obliged to declare you are an undischarged bankrupt if you apply for credit in excess of £500.

You are excluded from occupations and professions, such as the Police Force, Armed Forces, Local Council and Government Offices. Many employers carry out background searches - this might mean that promotion prospects are affected.

You will be unable to act as the director of a company.

You cannot take any part in the promotion, formation or management of a limited company without the permission of the court.

You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.

There may be restrictions on you practising as an Accountant/Solicitor.

If a Bankruptcy Restriction Order is granted:

You cannot become a Member of Parliament.
You cannot act as a Justice of the Peace (JP) or Governor of a School.
You cannot become a member of the Local Authority.

The bankruptcy order remains on your credit reference file for six years.

Any member of your family, or even your employer, could be publicly examined in court if the Official Receiver believes this will aid the investigation

Your name will appear in the local newspaper under the bankruptcy notices section.

The information is also displayed in the Individual Insolvency Register (accessible on the Insolvency Service website) until three months after you are discharged.

Assets

Some items aren't treated as assets for this purpose:

equipment you need for your work (eg, tools or vehicles)
household items needed by you and your family (eg, clothing, bedding and furniture)

If you have a regular and disposable income you'll be asked to make monthly payments for three years towards your debts based on what the Official Receiver thinks is affordable.
If your circumstances change, you'll need to tell the Official Receiver, so they can review these arrangements.