The third quarter figures (2010) reveal almost 34,000 personal insolvencies in England and Wales, a reduction of 3.7% over 2009. Figures released for Scotland also show a slight drop. (The law relating to Scottish bankruptcy is different from that of England and Wales).
While any reduction in personal bankruptcy figures is to be welcomed, some insolvency experts remain pessimistic about the future.
Personal insolvencies, in England and Wales include:
- Debt Relief Orders
- Individual Voluntary Arrangements (IVAs)
The following information offers those considering personal bankruptcy as a way out of debt some answers to key questions.
What is Personal Bankruptcy?
Personal bankruptcy is one method (there are others) of dealing with debts that cannot be paid. However the effects of bankruptcy can, depending on circumstances, be severe and life changing and should not be treated lightly.
How is a Person Made Bankrupt?
A person can be made bankrupt in three different ways:
- By declaring themselves bankrupt if other options are not appropriate
- Being declared bankrupt by a creditor who is owed a minimum of £750
- Being declared bankrupt by the administrator of a person bound by an Individual Voluntary Arrangement (if the IVA has failed)
What are the Effects of Personal Bankruptcy?
- A bankrupt loses control of their assets
- Credit is very difficult to source
- A bankrupt cannot act as a company director
- There are certain professions a bankrupt cannot enter
- A bankrupt’s credit rating will be adversely affected for a number of years after the bankruptcy is annulled
This list is not exhaustive, full details about the effects of bankruptcy should be explained by the insolvency practitioner who is advising on the procedure.
Advantages of Bankruptcy
To somebody going through the painful process of personal bankruptcy it may not seem that there are any advantages of bankruptcy.
Putting aside the loss of assets, the effect on jobs, bank accounts and the perceived stigma, bankruptcy does have one overwhelming advantage. That is when the process has run its course the debts will finally be paid and life can again be enjoyed without the spectre of debt.
Personal Bankruptcy may not be the Answer
Louise Brittain, an insolvency practitioner at one of the UK’s leading accountancy practices, writing for the BBC makes an interesting point. She said, “You cannot be made bankrupt overnight.” Anybody who thinks that bankruptcy is imminent should be aware that the bankruptcy process will take a minimum of three months to complete and normally takes between 6-12 months before coming to court. Consequently Louise Brittain’s advice to those who do not want to go down the bankruptcy route is that there is ample time to explore other ways out of debt.