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What do I do? Is Bankruptcy the best option?

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Hi all,

I am in a bit of a !!!!!! place with debt. We own our home so we do have this asset however we haven’t been here long so do not have enough equity to look at a secured loan. I have spoken about an IVA however I wouldn’t really be able to afford to pay much at all. I have the option on bankruptcy, this seems really scary hence my questions in regards to IVA vs Bankruptcy.
If I declare myself bankrupt will we have to sell our home? 
Will declaring myself bankrupt mean I can start rebuilding my credit immediately opposed to having an IVA for 6 years, then having to rebuild my credit once it has completed? 

Any advice would be much appreciated. I have around £35k worth of debt, massively coronavirus impacted due to being on furlough. I work in a highly commission based job and have done all my life so got used to a certain way of living, went from taking home between £3-4K to taking home just over £1k due to not being actually in work to earn the commission. 
We also found out we were pregnant and have a young baby. So I want to pick the best option that will also be the quickest as we do want to move house as soon as we can. I know we are more than likely looking at at least 6 years so I’m not expecting to be able to do anything before then!

Comments

  • luvchocolate
    luvchocolate Posts: 3,279 Forumite
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    Hi please contact one of the debt free charities..Stepchange or National Debtline. 
    That's quite a small amount of debt to go bankrupt for especially when you have a house to protect 
  • VAelizVS
    VAelizVS Posts: 11 Forumite
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    I have spoken with them. They’ve advised I qualify for both. It isn’t the amount in general it’s the fact that I can’t afford to pay it back
  • Sonic101
    Sonic101 Posts: 151 Forumite
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    Hi there 
    There is some useful information on the CAB’s website about bankruptcy and your home (if you’re a homeowner).

    https://www.citizensadvice.org.uk/debt-and-money/debt-solutions/bankruptcy-2/is-bankruptcy-right-for-you/will-you-lose-your-home-bankruptcy/

  • cymruchris
    cymruchris Posts: 5,358 Forumite
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    There are evidently two of you living at home - are the debts just in your name? Or do the debts total £35k from you both? You say your income is down - how about your partners income?

    Bankruptcy would be discharged within the year (as long as you co-operated with the official receiver and didn't try and cheat the system) and you'd usually be able to get your first credit building credit card at around 18 months. The downside of course is that any asset you own - shares/car/house will all be sold to pay the debt. The chances of then getting a mortgage anywhere near a normal market rate then would probably take around 5-6 years of good behaviour (you'll likely get a mortgage at 3 years with good behaviour - but it likely won't be a decent rate - so your payments will be higher). Bankruptcy is a short, sharp shock, but will have some major repercussions on your life.

    What happens when your salary goes back to a normal level - is the outlook positive in your industry that there's recovery in sight?

    All being well you're not going to sit on £1k a month forever?

    So I'd be looking at all the non-bankruptcy options to start with, as of course once your salary is back to normal, you could throw more of it towards your debts and clear them down. 


    An ex-bankrupt on a journey of recovery. Feel free to send me a DM reference credit building credit cards from the usual suspects :) Happy to help others going through what I've been through!
  • VAelizVS
    VAelizVS Posts: 11 Forumite
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    Hi 

    Yes they’re all in my name. My partner is clean of debt it’s just my own that have piled up. 
    My income will increase ever so slightly but still not enough for me to be able to pay the debts off quickly. I think a DMP they advised would take 12 years. And IVA was 6 years but then I’m just worried about the IVA and constantly being monitored/looked at every year. 
    In all honesty I just want it done, I’ve had this hanging over me for a long now 
  • cymruchris
    cymruchris Posts: 5,358 Forumite
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    So how is your house ownership set - joint mortgage - both names on the deeds?

    Do you have a car worth over £500?

    As close as you can realistically estimate - how much equity is there in your current home - price paid versus would it would sell for tomorrow?

    The official receiver keeps an interest in your property for 3 years - so let's say today your property is worth £150k - but have zero equity, but In 3 years time if the house price has risen to £180k - then they'd have the right to sell it and recover your debts from your share of the property. Someone else could buy that share rather than the house being sold - but would someone have that kind of money in place to cover whatever the house price has risen by? If the property is sold - do you want to wait 6 years before you can buy another one? (as in when you can get a decent mortgage rate again)

    You haven't mentioned yet whether you've done a full analysis of your incomings and outgoings as to what steps you might be able to take to reduce your outgoings and deal more with the debt, you will have become accustomed to a certain kind of lifestyle based on your previous salary (many people do the same).

    This isn't a judgment - but how did you get to the £35k - was it a series of genuine emergencies - a bit of overspending - holidays - how did you get to where you are in terms of the debt levels? Do you have 'things' around the house to show for that spending? Do you have 3 iPads in the household? Any tech that's nice to have but not essential - look around you - what do you have that although it's convenient could you do without? Make a list of everything non-essential, and see on ebay what people sell it all for, and see what it adds up to. A good house clearance of things can make an impact on the debt. Yes - you no longer have your 'things' - but you're also digging down the debt. You're in a sticky situation, and getting yourself out of it is more important than owning stuff. Stuff you can buy again in future when you're on a more even keel.

    Do you use premium spotify? Netflix? sky? what's your broadband package - can you downgrade to the most basic option? It may be that you've done all this already - and if you have great - but if you haven't it's food for thought. Every little fragment you can chisel off the debt gets you in the right direction. 

    Obviously your income is lower at the moment - have you considered taking a second job if your current one isn't covering the bills? Even if it's not your normal line of work? Or have you considered an imminent change of career rather than waiting for the current one to get back to normal?

    To be fair - there are so many questions to think about - and really bankruptcy isn't the 'easy way out' or a quick win.

    It'll hurt you in many ways for years to come.

    Yes there are people that have to go through bankruptcy - I was one of them - a business failure left me with debts of £120k - but for £35k - there would hopefully be another way. Is your partner aware of the debts? And you didn't mention - do they have an income? Are you working on this challenge together?

    Have you spoken to the lenders yet to see if they'll give you some leeway?

    I know there's a lot of questions in there - but these are all questions you need to be asking yourself.

    Bankruptcy is ALWAYS an option - but you should do anything and everything you can to avoid it if at all possible. 
    An ex-bankrupt on a journey of recovery. Feel free to send me a DM reference credit building credit cards from the usual suspects :) Happy to help others going through what I've been through!
  • fatbelly
    fatbelly Posts: 20,929 Forumite
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    The main thing I noticed from your first post is that you want to move house. I would say to get on with that and then re-evaluate your options in the new situation.

    You don't want to be trying to move with a load of defaults or an insolvency.
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