Even in 2020, “bankruptcy” can be an uncomfortable word, at least as applied to individuals. It can certainly have uncomfortable repercussions. As a minimum, your credit record will be devastated. At worst, you could lose key assets such as the family home. All that said, however, part of the fear of bankruptcy can be the simple and understandable fear of the unknown. With that in mind, here is a quick guide to the basics of bankruptcy.
Bankruptcy should usually be your last-choice option not your first
If you’re overwhelmed with debt, it can seem like bankruptcy is your only way out. That may be the case, but it’s important to look into the others first, especially if you have assets. Ideally, get independent, knowledgeable advice from a fresh and unbiased pair of eyes. This may be available for free if you contact a debt-management charity.
Remember that bankruptcy is only one form of insolvency
Even if you need to go insolvent, you may not need to go bankrupt. For example, you might qualify for a Debt Relief Order or an Individual Voluntary Arrangement (or their Scottish counterparts). These are still forms of insolvency so they still have serious repercussions, but they may be less painful than bankruptcy.
Be very careful about selling/transferring assets if you’re considering bankruptcy
If you’re considering bankruptcy, then it could be very sensible to sell any assets you have before you go bankrupt. This allows you to have at least some control over the sales process (and what happens afterwards). It is, however, vital that you dispose of any proceeds in a legal, responsible and ethical way.
Firstly, you need to dispose of any assets at fair market value. If you sell an asset on the open market, this will take care of itself. If, however, you sell to a partner, family member or friend, then you must be able to demonstrate that they paid a fair market price for the asset. This is for their protection as well as yours.
Secondly, any proceeds from the sale should generally be fairly divided amongst legally-recognized creditors. Whatever you do, resist any temptation to have “one last hurrah” or to use the money to pay back “informal loans” for example to family and friends. If you do end up going bankrupt, this will not go down well. In fact, if you give money to family and friends, it could create problems for them as well as you.
It is impossible to overstate the importance of disposing of any assets in an acceptable manner. In fact, it’s so important that you might want to ask for professional advice on how to go about it.
You need to have all your financial paperwork in order before you file for bankruptcy
When you file for bankruptcy, you will need to supply detailed information about your assets and liabilities, income and outgoings. If you’ve thoroughly looked at your financial situation before filing for bankruptcy, then you should be well-prepared for this.
You can now file for bankruptcy online
It took until 2016, but you can now file your bankruptcy petition online. This means that you avoid the need to go to court. You can also pay the fee in instalments. This can, however, delay your application since you can only file for bankruptcy once the fee has been paid in full.
Bankruptcy can be a relief
Bankruptcy isn’t likely to be a whole lot of fun, but it can be a relief. In fact, waking up each morning knowing that nobody is going to be hassling you for debt can be a whole lot pleasanter than waking up each morning wondering how you’re going to cope.
For more information, please contact us.