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Should I Declare Bankruptcy?

Bankruptcy is often thought of as something to be avoided at all costs. However, if you have unsecured personal debts which you cannot repay, it could the best way to solve your financial difficulties.

According to the Insolvency Service, approximately 6000 people declare bankruptcy every month in England and Wales. Once declared bankrupt, an individual's debts are taken away from them and after a year, written off completely. Despite this, many people write off bankruptcy as a solution to resolve their debt because they believe that it will mean that they will lose their home and possessions.

The reality is that in very many cases this is just does not happen and bankruptcy is often the best option to resolve an unsecured debt problem.

Tenants are unlikely to lose their property

If you are a tenant you can declare bankruptcy with little or no risk of losing your home. If you rent from the local Council or Housing Association, then as long as you maintain your monthly rent payments, you will certainly be able to stay in your property if you are bankrupt.

If you rent privately, your landlord will be told that you are bankrupt. The majority of private landlords will not have a problem with this as long as you maintain your rent payments.

Property owners with no equity

The worry about bankruptcy if you are a homeowner is that you will have to give up any equity you have in the property. This very often means that the house has to be sold. However, if you have little or no equity, you will normally be able to keep your house. In these circumstances you can buy back the title to your property for a nominal fee meaning there is no risk to your property in the future either.

Will I lose personal possessions?

It is a myth that if you declare bankruptcy, things such as your washing machine, TV and furniture will be taken away. Household goods will only be taken if they are extremely valuable (for example an expensive painting or antique furniture). As such, the majority of people do not have to worry about losing any of their personal possessions

The only asset that does need to be considered carefully is a private car. If you own a car valued above £1,500 it may be at risk. However, this does not mean that you will automatically lose the vehicle. If there is a specific reason for its requirement, you may be able to keep it. Alternatively a friend or family member could offer to pay any amount of its value over £1,500 thus avoiding its loss.

What if I am a Director?

There are of course some occasions when bankruptcy may not be the right option. This is particularly the case for company directors. If you are a director and wish to remain in this position you cannot declare bankruptcy. Bankrupt individuals are not allowed to act as company directors or act in the capacity of managing a limited company for the period covered by their bankruptcy (normally 12 months).

In addition, there is a certain amount of publicity surrounding bankruptcy. As a bankrupt, your name is advertised in the local newspaper. In addition you are added to the insolvency register which is publicly accessible via the internet.

Clearly, bankruptcy is not right for everyone. However, it is an extremely useful debt solution for many people and certainly should not be overlooked because of misconceptions based on a lack of understanding.

If you are struggling with unsecured personal debt, you should certainly familiarise yourself with bankruptcy and whether it might be right for you.

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