Under UK law, a person can declare bankruptcy under the Insolvency Rules 1986. A creditor or group of creditors can also bring an order of bankruptcy against a borrower under the law.

If you are facing severe financial difficulties and find yourself unable to pay your debts, you may consider declaring yourself insolvent. However, declaration of bankruptcy should only be used as the very last resort as it can significantly affect your assets and credit rating.

Negative Effects of Declaring Bankruptcy

Being declared bankrupt have several negative effects on an individual’s life. Some of these negative consequences include the following.

Public Record: The financial information of a person declared bankrupt is made public. You are required to provide evidence of all your assets, debts and incomes. The list of your assets is made public. Your creditors are also informed that you have filed for insolvency.

Credit Rating: The record of being declared bankrupt stays on your record for 10 years. This can make it very difficult for you to acquire loans or credit in the future.

Job Hire Restrictions: Certain professions, especially those related to law, finance and banking impose restrictions on hiring individuals who have declared insolvency. Many employers also check the credit reports of their candidates before hiring them.

Social Stigma: A person who has been declared bankrupt in the past is looked upon in a negative way. This is because of their admission of their inability to pay their bills and credit. An insolvent person’s name stays part of the public record for seven years.

Asset Protection: The personal assets of an individual, who claims bankruptcy, are usually protected from creditor claims. However, some of their assets may be seized to pay off their creditors.

Liability Payments: While most types of credit balances are written off for a person claiming insolvency, they may still be required to pay certain liabilities such as child support, government taxes, student loans, and criminal penalties.

Review Other Options

There are many drawbacks to bankruptcy and some consider it akin to financial suicide. There are several debt settlement and re-arrangement options that are more preferable to bankruptcy. You should contact a financial adviser or credit consultant before filing for insolvency.

You may be surprised to find out how cooperative your creditors are to keep you from filing for insolvency. Many creditors will agree to debt settlement through part payment while others would accept a formal IVA or informal debt payment plan.

The Bankruptcy Requirements

If you have no other options left, you can file for bankruptcy declaration by submitting an online application to the UK government. You would need to provide the following documents with the application.

1. Wage slips
2. Documents of investment or savings fund income
3. UK benefits or pension statements
4. Any other sources of income
5. Your assets, home, and any other possessions
6. Bills and invoices showing credit card payments, local taxes and utility bills etc.
7. Letters from enforcement agents attesting your inability to pay your bills.

Settlement of Liabilities

You will be appointed an adjudicator who will inform you about the decision to declare you bankrupt. The adjudicator may sell your non-essential assets and home to repay your creditors. They will also take over your bank accounts, cheque books, and credit cards.

You may also be ordered to make monthly payments from your income to a formal arrangement fund for up to 3 years to pay off your creditors.

The period of bankruptcy lasts for 12 months from the date that the adjudicator declares you bankrupt.