What is Bankruptcy?
When you have no money to discharge your debt you can approach a court for a bankruptcy order. Your creditors can also move the court to declare you as a bankrupt without seeking your consent. Often times, this is the very last option you want to exercise because the consequences of bankruptcy can be socially embarrassing and personally overwhelming. But, if you decide to consider this option after careful thought and competent debt advice, an official receiver will take charge of your property and money to deal with your creditors consequent upon a court order. A bankruptcy prevents the creditors from initiating any other recovery action against you. Bankruptcy lasts for one year and at the end of this period, you can turn a new leaf to start your financial life all over again. Any outstanding amount at the end of the 1 year period is usually written off.
Explore Your Options
When you find yourself in a situation meriting bankruptcy it is important that you seek competent advice from debt experts and every option available under law have been exhausted. As a Scottish resident, sequestration is the equivalent of bankruptcy elsewhere in UK and other parts of the globe. But the LILA or Low Income Low Asset debt relief option may be more suitable for you when you meet the eligibility criteria to make an application under LILA. Remember also that an upfront fee of £200 applies to sequestration as well as LILA.
We shall now briefly consider the advantages and disadvantages of a bankruptcy.
The biggest advantage from bankruptcy is that it takes off the pressure from you and creditors will stop harassing you for their dues. Inspite of the bankruptcy you are allowed to keep things like household goods and some reasonable amount of money to live. The bankruptcy order gets over usually at the end of one year and you can start your financial life afresh. Pending court action from creditors will stop though you may lose your belongings to the creditors in some circumstances. Any outstanding debt at the end of the one year period is usually written off.
A bankruptcy brings along significant disadvantages to your personal as well as financial life. If you are in business, you may face social embarrassment apartment from legal restrictions in some situations. Employees will need to check their employment terms since some employers may stipulate bankruptcy as a disqualification to continue in employment. You may also not be able to run an incorporated company or hold position as director.
Your credit score will be compromised and you will find it extremely difficult to obtain fresh credit. Even when you do succeed the cost of credit can be astronomical. The woes don’t stop there and if you borrow £250 or more, you must inform the lender of your bankruptcy status. You may lose your home though you may have the option of applying to the local re-housing authority. The social stigma can potentially haunt you for long.