When people say they need to go bankrupt, they usually are referring to the fact they are struggling with bills and debts, may have collector chasing them for payment, and in general cannot afford to pay their accounts.
For many people, they will struggle with paying debts, being in arrears, in default, and being chased for payments for years, and then one day just realise, maybe bankruptcy is the best way forward.
Bankruptcy is not something to enter into lightly, there are serious implications of being bankrupt.
- Bankruptcy stays on your credit file for six (6) years
- One of the restrictions of bankruptcy is that you cannot be a company director whilst bankrupt
- You cannot borrow more than £500 without tell the lender you are bankrupt
- If you own property or other assets, they may taken in the bankruptcy
- If you are self-employed you cannot change your company name without disclosing the bankruptcy to everyone you do business with
- You can be barred or dismissed from some jobs
- If you reside in Northern Ireland, you may not be able to leave Northern Ireland without permission
- Your name is on the Insolvency Register
Which now begs the question:
What is the Insolvency Register?
The IIR or Individual Insolvency Register, is a list of those that have gone bankrupt, entered into an IVA/Individual Voluntary Arrangement, or is in a Debt Relief Order.
All these options to be out of debt, are forms of insolvency, and as such, those that have entered into one of these agreements, is placed on the Insolvency Register.
So in looking at insolvency and bankruptcy:
Insolvency is defined as: a state of financial distress, for a business or individual, where their liabilities, exceed their assets. They cannot afford to repay their debts.
Bankruptcy is defined as: a way for an individual or company resolve the fact they are insolvent, involving the courts. As a business of individual cannot afford to repay their debts, they seek assistance through the courts.
The courts then intercede on the bankrupt’s behalf, stopping all contact and collection process by a creditor to the person going bankrupt.
For this help and assistance from the courts, there is a price to pay, and not just the fees of £680 per person, but the fact you are giving up control over your finances, and asking the courts to help you.
An Official Receiver is appointed, whose job it is to see if there is anyway to recover money from you to offset any losses your creditors may experience.
This means the sale of any assets, such as property.
In addition, if you have a sufficient surplus of income after your allowed living expenses, you could be required to pay this surplus into the bankruptcy under an IPA/Income Payment Agreement, or IPO/Income Payment Order, for a period of three (3) years.
As you can see, getting professional advice prior to going bankrupt is imperative.
How Can I Go Bankrupt?
There are three (3) ways to go bankrupt:
- You owe £20,000 or more and make yourself bankrupt
- You owe a creditor £5,000 or more and they make you bankrupt
- You fail or break the terms of an IVA and the Insolvency Practitioner makes you bankrupt
In answering the question about the difference between insolvency and bankruptcy:
Being insolvent does not make you bankrupt.
Insolvency is when you cannot pay your debts, you cannot afford them, and do not have the financial means to pay them.
Bankruptcy is a cure for insolvency. A way to get out of being insolvent, by have assistance via the courts.
Simply put:
Insolvency is a state of financial distress.
Bankruptcy is a legal process, a form of insolvency.