Bankruptcy

Normally the last resort, bankruptcy is a way of releasing yourself from mounting debts that you cannot afford to pay. Bankruptcy is a court order that declares you incapable of making prearranged payments with your creditors.

Your creditors can take steps to force you into bankruptcy by approaching the court directly, or you can voluntarily apply to be made bankrupt. To do so you would be required to complete a number of forms and also pay a fee.

If you are made bankrupt, whether voluntary or forced, your creditors can no longer pursue you for payment of any amounts owed. However you lose complete control of any money and property you own and, depending on the state of your personal affairs, you may be required to make a contribution towards the total amount owing.

Your assets are then divided up between your creditors and any property you own, including the property in which you live in, can be sold to recover any losses.

If you are made bankrupt your details are made available to the public through the internet and newspapers. Bankruptcy information, as well as CCJs (County Court Judgements) is recorded on your credit report. If a potential landlord, employer or lender search your credit report details of your bankruptcy can be seen under the public information listed on your report.

A bankruptcy order remains on your credit report for a minimum of six years from the date of bankruptcy, but can be longer if your bankruptcy lasts longer than six years. During this term a number of restrictions apply, notably you are legally obliged to inform a potential lender that you are bankrupt if you apply for credit of more than £500.

After a period of 12 months you are automatically discharged from being bankrupt, although this period can be extended if you fail to cooperate in the bankruptcy proceedings. Discharge information is held by the Insolvency Service so the majority of bankruptcies that are discharged are routinely updated to show on your credit report. To be discharged means you are no longer bound by certain restrictions imposed by the bankruptcy order.

In Scotland a bankruptcy order is known as a Sequestration. Unlike a bankruptcy however you can only be discharged from a sequestration after a period of three years.

If you are discharged from bankruptcy then you should ensure that this can be seen on your credit report. If this does not show you should provide all Credit Reference Agencies with your Order of Discharge certificate so your credit report can be updated.

If your bankruptcy order is cancelled, otherwise known as annulment, then you should provide your Annulment certificate as confirmation then the bankruptcy order can be completely removed from your credit report. How to get your credit report

A bankruptcy order will adversely affect your credit rating; therefore your chances of obtaining credit, certain positions in employment, and even renting a property will be hindered. Because of this there are alternatives to bankruptcy which should be seriously considered.

If you are finding it difficult to keep up with your repayments then you should contact your creditors in the first instance. Explain your situation to them and mutually you may be able to come to some sort of agreement. If this can be done you may be able to avoid being issued with even a Default or CCJ.

If you cannot come to an agreement with your creditors directly then do seek professional advice, as individuals in more favorable circumstances may be suitable for Debt Management or even an IVA (Individual Voluntary Arrangement).