April 2024
Advantages Of Bankruptcy In 2024
Bankruptcy is a legal process that allows people or businesses to restructure or discharge their debts. There are several reasons why someone may want to file for bankruptcy.
Some believe it is the best option for eliminating debt after their circumstances change. In contrast, others feel that it is the only way out.
If you have a low income and cannot repay your debts, bankruptcy may be the best alternative for you. Bankruptcy can alleviate your debt while also lowering your monthly expenditures. It can also provide you with a fresh start by enabling you to discharge your debt and rebuild your credit.
This article will explain some of the advantages and disadvantages of a bankruptcy filing, how to declare bankruptcy and the impact it will have on your credit score, assets, and career.
Topics that you will find covered on this page
Bankruptcy advantages
We have set out below examples if different types of advantages to bankruptcy.
Unsecured debts
One of the main benefits of bankruptcies is that they can give you a fresh start. A fresh start means that all of your unsecured debt will be discharged, providing you with significant financial relief.
Creditors
Creditors will be unable to take any action against you while declaring bankruptcy proceedings to recover the money they are owed, including asset seizure, among other things.
An automatic stay will be put in place once you’ve been declared bankrupt, which may help you avoid creditor collections.
Wage garnishment
Wage garnishment is a legal process whereby a creditor can seize a portion of your wages to pay your debt.
This usually happens when you cannot make your loan or credit card payments on time. An automatic stay will be put in place, and wage garnishment will no longer be an option for those trying to collect on your debt, which will protect your income.
Debt Cancelation
Another advantage is that it can cancel some of your debts. This is especially helpful for people who have much debt and struggle to make ends meet. Once you’ve been granted bankruptcy, most of your unsecured debts will be discharged, providing you with significant financial relief.
Credit report
If you have bad credit, filing for bankruptcy may be the best way to improve your financial situation. This is because all of your unsecured debt will be discharged, providing you with significant relief.
Once you’ve been discharged, most of your debts will be cancelled, which means they won’t appear on your credit report anymore, and you can rebuild your credit over time.
If you have good credit, filing a bankruptcy petition may temporarily hurt your credit score, but if you have excellent credit, it probably won’t have much of an impact.
If you have terrible credit, filing for bankruptcy may be your only hope to improve your financial situation. Most people improve their credit rating after a fresh start, which will lead to many different benefits for your finances.
Keeping your home or car
If you are going through foreclosure, going bankrupt might be able to assist you in keeping your home or vehicle. An automatic stay will be issued by the court after you file for bankruptcy.
This stop will suspend your foreclosure procedures and provide you additional time to pay off your mortgage. If you are being repossessed, filing for bankruptcy will also terminate your repossession action and give you extra time to make car payments.
Access to credit and banking products
You’ll have more options when it comes to credit products and banking services after bankruptcy. You’ll also be able to get a mortgage and various other financial instruments more efficiently and be able to begin repairing your credit.
Deciding on filing
Of course, there are also some disadvantages that you should consider before you decide to declare bankruptcy. For instance, it will stay on your credit report for up to ten years and may make it difficult to get loans during that time.
You should always speak with a lawyer before deciding whether or not to go bankrupt, as what you decide will vary depending on different factors. They can help you understand the process and what to expect moving forward.
Bankruptcy restrictions and disadvantages
Bankruptcy will have different effects on different people, depending on their circumstances and financial difficulties.
It is important to seek professional advice to see how you might be affected before deciding and weighing the advantages and disadvantages thoroughly. Some of the effects of bankruptcy are:
Credit report
One of the biggest effects of being bankrupt will be your credit. Your credit score will be damaged for up to six years after you exit bankruptcy.
It will be difficult to obtain credit during this period, and you will lose tax refunds for the entire bankruptcy period, affecting your income. If the prospective employer does a credit check, you may have trouble finding a job.
You may have trouble renting an apartment if the landlord does a credit check. Another restriction is that you won’t be able to obtain credit beyond a certain amount.
"Bankruptcy is a legal process that allows people or businesses to restructure or discharge their debts. There are several reasons why someone may want to file for bankruptcy."
Assets
You may be forced to sell assets with equity to pay off your debts, which means that an official receiver will collect your assets and distribute them. On the other hand, this does not necessarily imply giving up all of one’s belongings.
Certain items are excluded from being sold, such as one’s home, automobile, furnishings, clothing, and equipment in their trade and pension plans.
The assets you relinquish when declaring bankruptcy are known as “bankruptcy estates.” If you have equity in your house, it can be included in your estate, and if you rent your home, your tenancy agreement may be affected.
However, if your house is jointly owned by you and your spouse or civil partner and they aren’t able to sell their share, they will usually be allowed to keep it.
The official receiver may require you to relinquish other non-exempt assets with equity, such as luxury goods, investment accounts, second homes, and automobiles. You may also lose surplus income. These assets will be auctioned by the trustee overseeing your case, and the money will be used to pay off your debt.
Bank account
Your bank account and building society accounts may shut down if you declare yourself bankrupt, which means you will be unable to access your funds. You may also be forced to close your account and start a new one.
Joint debts
If you declare yourself bankrupt, then joint debt (such as loans or mortgages) will become the sole responsibility of the other party or parties, and they will be liable to pay the full amount if creditors demand payment.
Employment
Filing for bankruptcy will not automatically cause you to lose your job. However, suppose your profession needs a professional licence, such as that of a lawyer or doctor.
In that case, you may be unable to keep your job because most professional licensing boards refuse to grant licences to individuals with bankruptcies on their records. Declaring yourself bankrupt might also prevent you from serving as a company director and running your firm.
Benefits
Filing for bankruptcy can have a variety of effects on your benefits. If you’re receiving Employment and Support Allowance (ESA), your payments may be reduced or stopped altogether. Your payments will be impacted if you are claiming Universal Credit.
Going bankrupt can also impact your Housing Benefit and Council Tax Reduction. You may no longer be eligible for these benefits if you own your home or have a mortgage.
Hire Purchase
Hire purchase, and conditional debts may be affected by bankruptcy. If you choose to file for bankruptcy, check your agreement with the hiring company looking for a clause in the agreement allowing for termination or third party payments during the discharge period.
Commitment
The filing bankruptcy process can be time-consuming and stressful. It can take several months or even years to complete, and the bankruptcy period may be lengthy.
Public record
If you go bankrupt, it will be published in the London Gazette and the Edinburgh Gazette and the online Insolvency Register. Your name, address, occupation, and amount of debt will be published in these newspapers and online.
Debts not covered by bankruptcy
It’s important to note that not all debts can be cancelled by declaring yourself bankrupt. The following debts are not included in bankruptcy:
- Child support
- Alimony
- Student loans
- Court-ordered fines
- Crisis loans
- Criminal restitution
If you have these types of debt, you will still be responsible for repaying them despite declaring bankruptcy.
Debts that are included in bankruptcy
These debts will be cancelled through bankruptcy:
- Credit card debt
- Medical bills
- Personal loans
- Payday loans
- Utility bills
- Lease and rental agreements
- Auto loans
- Some types of tax debt
- HOA fees and assessments
- Medical bills
- Personal loans
- Business loans
- Payday loans
- Business Debts
If you have any of these types of debt, you may be able to have them discharged through bankruptcy. It would be best if you spoke with a bankruptcy lawyer to find out more about which debts are covered and which are not.
Bankruptcy eligibility
To be eligible to submit a bankruptcy application in the United Kingdom, you must:
• Be insolvent, which means that you are unable to pay your debts as they fall due.
• Owe at least £5,000.
• Have few or no assets.
If you meet these criteria, you can apply to be declared bankrupt by a bankruptcy court.
Filing bankruptcy
You can file bankruptcy by completing the necessary forms and delivering them to the court if you fulfil the requirements. If you live in England, you must contact the Insolvency Service.
This is a government organisation that gives free advice to individuals who are having trouble making ends meet.
You may fill out the forms either online or via email and request them from the Insolvency Service. After you’ve completed the paperwork, return it to the Insolvency Service, and you will be assigned a bankruptcy trustee.
You may then be required to attend a creditors’ meeting or a bankruptcy court hearing with your trustee present. This is a meeting of creditors during which they can ask you questions about your financial status, income, and why you can’t pay your bills.
You’ll also be required to submit to a means test, which is used to determine whether you can pay your debts. If the means test shows that you cannot, most of your debts will be cancelled.
You can find more information about the means test and other requirements on the government’s website.
Bankruptcy order
Once a bankruptcy order is made, you’ll be required to:
- Comply with the terms of the order.
- Cooperate with your bankruptcy trustee and official receiver.
- Attend mandatory credit counselling sessions.
- Give up any assets that are not exempt from seizure.
- Make payments toward your debts as required by the court in a reasonable time.
If you fail to comply with the terms of your bankruptcy order and do not cooperate with your bankruptcy trustee or attend all credit counselling, you may be subject to penalties, including being barred from being discharged from bankruptcy and having your bankruptcy extended.
Contacting a Bankruptcy Lawyer
A lawyer can help you with filling out the proper forms, understanding the legal issue and discharge criteria, bargaining with official receivers and creditors, and weighing the advantages and disadvantages of filing for bankruptcy to come to the right solution for you.
Bring any papers related to your situation, such as financial statements, credit reports, bills, and anything related to income, when you go to see a bankruptcy attorney. Only then will a bankruptcy attorney be able to assist you if you are honest and forthcoming about your financial circumstances.
Some lawyers provide free initial consultations, but not all do. You’ll generally have to pay your lawyer for the work they accomplish on your case.
You can also request that the court make a “payment order,” which means that some of the money owed must be given to you to pay your lawyer’s fees, but this does not always happen.
You should also check whether there are any other charges, such as:
Administration fee – This is sometimes charged by the lawyer or firm carrying out the bankruptcy proceedings
Disbursements – These are additional costs related to your case that you may have to pay, such as court fees.
Bankruptcy discharge
You will be discharged from bankruptcy automatically after 12 months unless:
- You have been found to have committed a bankruptcy offence.
- You have failed to comply with the terms of your bankruptcy order.
- Your creditors object to your discharge.
Once you’ve been discharged from bankruptcy, most of your obligations will be wiped away, and you’ll no longer be responsible for them. You’ll also have the opportunity to start fresh with a clean financial record.
What are the alternatives to declaring bankruptcy?
If you’re having difficulties paying your obligations and want to declare bankruptcy to be a last resort, consider one of the following alternatives for debt solution: Individual voluntary arrangement, Debt consolidation, Trust deed, or Debt Relief Order.
More information on these options is available on the government website.
Article author
Katy Davies
I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch. I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.
Outside of work, I love the snow and am a keen snowboarder. Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.
Email – [email protected]
Frequently Asked Questions
Advantages of bankruptcy
Bankruptcy is a legal process that allows people or businesses to restructure or discharge their debts. There are several reasons why someone may want to file for bankruptcy.
Some believe it is the best option for eliminating debt after their circumstances change. In contrast, others feel that it is the only way out.
Unsecured debts
One of the main benefits of bankruptcies is that they can give you a fresh start. A fresh start means that all of your unsecured debt will be discharged, providing you with significant financial relief.
Joint debts
If you declare yourself bankrupt, then joint debt (such as loans or mortgages) will become the sole responsibility of the other party or parties, and they will be liable to pay the full amount if creditors demand payment.
What are the alternatives to declaring bankruptcy?
If you’re having difficulties paying your obligations and want to declare bankruptcy to be a last resort, consider one of the following alternatives for debt solution: Individual voluntary arrangement, Debt consolidation, Trust deed, or Debt Relief Order.
