Declaring Yourself Bankrupt - Pros and Cons....

tsharp

Can anyone please outline the major pitfalls of declaring yourself bankrupt?

A friend of mine (who is in no debt at all) keeps suggesting bankruptcy as the 'perfect' way out of debt. I keep saying it's a serious undertaking which screws up your life for a good few years, but he's sticking to the idea that if you just took out thousands of pounds in a loan/credit cards you could just live the life of riley and never pay it back! :rolleyes:

Do the creditors have to agree to it first? Otherwise they'd just be kissing goodbye to all the funds lent and the potential income from the interest...?

fermi

From one who has gone through it, it is a far from the perfect solution.
As always, it depends on each individual circumstance.

Some of many useful links are:

http://www.insolvency.gov.uk/
http://insolvencyhelpline.co.uk/
http://nationaldebtline.co.uk/

They will give you an idea of the Pros/Cons far better than a post on here can.

Before you even think of insolvency, you must take professional advise.

Contact CCCS, PayPlan, NationalDebtline or CAB. Their advise is free.

Good luck..:)

fermi

Should have said:

For advice/support from others who have done it (or are considering it), please see the 'sub forum' 'Bankruptcy & Living With It'.

For one reason or another, good or bad, we have found ourselves in that place.

Again, best of luck.....

Conor_3

tsharp wrote: »

but he's sticking to the idea that if you just took out thousands of pounds in a loan/credit cards you could just live the life of riley and never pay it back! :rolleyes:

Only a couple of problems to this:

1) Basically you're committing the offence of fraud by taking out credit you have no intention of paying. YOU CAN GO TO PRISON FOR THIS.
2) You would be found to have been reckless in acquiring the debts so the judge isn't automatically going to declare you bankrupt and the OR could ask for it to be overturned. It could be several years before you get discharged from bankruptcy - it isn't an automatic 12 months. You can remain bankrupt up to 15 years if the Official Receiver decides you've been reckless.
3) It really does knacker your credit rating for a good few years. I banked in 2001. I have 6 years of nothing but perfect payment history on my credit file with no CCJs or defaults etc yet I still can't get a loan.

makingendsmeet_2

1) Basically you're committing the offence of fraud by taking out credit you have no intention of paying. YOU CAN GO TO PRISON FOR THIS.
2) You would be found to have been reckless in acquiring the debts so the judge isn't automatically going to declare you bankrupt and the OR could ask for it to be overturned. It could be several years before you get discharged from bankruptcy - it isn't an automatic 12 months. You can remain bankrupt up to 15 years if the Official Receiver decides you've been reckless.
3) It really does knacker your credit rating for a good few years. I banked in 2001. I have 6 years of nothing but perfect payment history on my credit file with no CCJs or defaults etc yet I still can't get a loan.

This is total crap. Borrowing money is NOT a crime. Worse that can happen is a BRU and that will wreck ur credit for up too the next 15 years

chevalier

sorry I agree with connor. If you knowingly took out a loan and then went barnkrupt at the very least it is obtaining money by deception ( the deception being that you would pay it back when you weren't going to), which can get you sent to prison

As regards the original posters question
Pro - your debt (assuming it is genuine not reckless as above) is wiped out
Con - but if you have any equity in your house - you will be made to release this
Pro - credit score shot to pieces no more credit woohoo
con - credit score shot to pieces how will I survive on my actual income
con - it is in the papers
pro - people still read papers and who cares I don't have the stress/worry/insomnia any more
con - its costs money to declare yourself bankrupt
pro - OR can discharge you in 12 months
con - but only if you aren't a complete plank and work with them

hope this helps
chev

fermi

tsharp wrote: »

I keep saying it's a serious undertaking which screws up your life for a good few years, but he's sticking to the idea that if you just took out thousands of pounds in a loan/credit cards you could just live the life of riley and never pay it back! :rolleyes:

He would probably (at the very least) be given a Bankruptcy Restriction Order/Undertaking; details of which can be found at:

http://www.insolvency.gov.uk/guidanceleaflets/bro/bro.htm

What sort of behaviour could lead the official receiver to apply for a BRO against me?

When deciding whether to make a BRO, the court may take into account your behaviour before and after the date of the bankruptcy order, so the official receiver will be looking closely at all your conduct.

We cannot list all the actions that could be considered dishonest or blameworthy in relation to your affairs, but here are some examples the official receiver could include in his report to court:

* incurring debts that you knew you had no reasonable chance of repaying
* giving away assets or selling them at less than their value
* deliberately paying off some creditors in preference to others
* gambling or making rash speculations or being unreasonably extravagant
* failing to keep or produce records that would explain a loss of money or property
* fraud or fraudulent breach of trust
* causing your debts to increase by neglecting your business affairs
* failing to supply goods or services that have been paid for
* carrying on a business when you knew or ought to have known you could not pay your debts

The more harm your behaviour causes your creditors, in the court's opinion, the longer the BRO is likely to last.

What are the restrictions?

They include the restrictions set out in insolvency law which you are subject to when you are made bankrupt and which are normally lifted when you are discharged from bankruptcy. These restrictions include the following:

* You must disclose your status to a credit provider if you wish to get credit of more than £500.
* You must disclose to those you wish to do business with the name (or trading style) under which you were made bankrupt.
* You may not act as the director of a company or take part in its promotion, formation or management unless you get the court's
permission to do so. (You can apply to the court for this.)
* You may not act as an insolvency practitioner, or as the receiver or manager of the property of a company on behalf of debenture holders.
* You may not be a Member of Parliament in England or Wales.

Various other restrictions are not set out in insolvency law; these include not being able to act as a local councillor. If you wish to check whether a BRO restricts you from being elected to or remaining in an office or position, you should seek guidance from the appointing or authorising body or group. Alternatively, contact our Insolvency Enquiry Line on 0845 602 9848 (open between 9am and 5pm Monday to Friday) or email: insolvency.enquiryline@insolvency.gsi.gov.uk and they may be able to check for you.

What happens if I am subject to a BRO and contravene the restrictions?

You may be prosecuted and, if found guilty, get a criminal penalty such as a fine or imprisonment.

Also, if you take part in the management of a company without the court's permission, you will be personally responsible for any debts of the company that arise while you are managing it.

It can be imposed for between 2 and 15 years.

tsharp wrote: »

Do the creditors have to agree to it first? Otherwise they'd just be kissing goodbye to all the funds lent and the potential income from the interest...?

No they don't, unlike an IVA. It is however the most severe legal step to resolve your debts, hence a district judge having to make the order.

makingendsmeet_2

chevalier wrote: »

sorry I agree with connor. If you knowingly took out a loan and then went barnkrupt at the very least it is obtaining money by deception ( the deception being that you would pay it back when you weren't going to), which can get you sent to prison. Highly unlikly if you borrowed the money from a bank. Unless say you borrowed it one week and when bankrupt the next. The bank would also be to blame as they wouldn't have check if you could afford the amont of the loan.

As regards the original posters question
Pro - your debt (assuming it is genuine not reckless as above) is wiped out
Con - but if you have any equity in your house - you will be made to release this
The OP has already said they don't own a house
Pro - credit score shot to pieces no more credit woohoo
con - credit score shot to pieces how will I survive on my actual income
Surely having to live of your income is a good thing, NO MORE DEBT IN THE FUTURE! If you don't have the money to buy it the you simply can't afford it.
con - it is in the papers
pro - people still read papers and who cares I don't have the stress/worry/insomnia any more.Do people really read the banktuptcys and is it still something to be ashamed of? Do people really read the banktuptcys and is it still something to be ashamed off?
con - its costs money to declare yourself bankrupt
pro - OR can discharge you in 12 months Or a lot sonner. Most are discharged in 6 months
con - but only if you aren't a complete plank and work with them

hope this helps
chev

Like I said you will find people on this board are anti bankruptcy for whatever reason. Bankruptcy is there not there just to wreck peoples lifes but to give them a fresh start. It isn't a new thing it been around for years. Some people beleive it to be an easy option, most of the time the bankruptcy is but the stress leading up to it is far from an easy ride. Some people have been know to take their own lifes as the stress is too much to handle.

tsharp

Thanks all. I kind of guessed that it was not to be taken lightly, suggestions of 'just declare bankruptcy' are the words of someone with no debts or idea of the complexities to someone with a mounting debt problem...