Pros and Cons of Bankruptcies UK
Individuals no longer able to pay their debts can be forced into bankruptcy, a legal, financial procedure that can be used against them. For example, a person deemed mentally incapacitated may be detained by a court order, and the procedure may have both immediate and long-term consequences for the individual concerned. There are certain Pros and Cons of Bankruptcies UK you must be familiar with before declaring yourself such.
If your business is failed and you fear it’s impossible to recover the loss and pay your due debts, it’s the right time to declare yourself bankrupt. Bankruptcies have been on the rise since 2008, but only for those who can afford to go bankrupt due to the price involved with filing.
Many people are shocked to find out that bankruptcy is an option for them, and while it may be an effective method to clear your debts and establish a fresh financial start, it isn't always the best solution if you're having money problems.
What Happens in Bankruptcy?
In the United States and the United Kingdom, bankruptcy is a legal procedure that can be instituted by a court only. It may only be used by individuals, not companies or organizations. When someone is in financial difficulty and cannot pay their bills, they may seek bankruptcy protection.
You have the option of filing for bankruptcy yourself or being forced into it by a creditor seeking to recover your debt through the courts. There are obviously significant consequences to bankruptcy as a legal procedure, especially because it entails giving up your assets.
Bankruptcy is not the same as bankruptcy. Rather than a legal procedure, insolvency is a condition of existence. Insolvency exists when a person is no longer able to pay their debts. They only become bankrupt after the court recognizes this fact.
In the United States, companies can go bankrupt whereas, in the United Kingdom, they can only declare bankruptcy. If you want to file for bankruptcy in the UK, there are a number of things to think about.
What are the Pros of Bankruptcies UK?
What are the advantages of declaring bankruptcy as an individual? Because people are freed of their major debts in many situations, bankruptcy is often considered a fresh start. In most cases, creditors are unable to pursue payments, and when the bankruptcy period has elapsed, you're free to begin again. Let's take a closer look at the pros of bankruptcies UK in detail.
1. It helps you start afresh
Chapter 13 bankruptcy might be a new financial start, as long as the court agrees to cancel your major obligations. Debtors are frequently persuaded to more reasonable payment plans even if their entire debt may not be erased. However, they will be relieved of this repayment plan after a specific amount of time.
2. Bankruptcies last for 12 months only
Bankruptcy only lasts for a 12 months period. This is when you may need to make regular, monthly repayments or is placed under the financial control of the courts or a financial minder. After 12 months, you’re free again and, in the grand scheme of things, one year isn’t such a long time.
3. No harassment calls from debtors are noteworthy pros of Bankruptcies UK
Once you’ve filed for bankruptcy, you’re protected against any further harassment from your creditors. They’re legally bound to leave you alone, so no more invoices, emails or phone calls to deal with.
Creditors are also halted from taking any further legal action against you. They can’t send bailiffs around to your home, and they can’t try to recover the debt.
4. You can keep your income and personal possessions
Once you've filed for bankruptcy, your creditors are legally obligated to leave you alone. They are also forbidden from taking any further legal action against you. They can't send bailiffs to your house or seek to recover the debt.
Contrary to popular belief, you do not automatically lose all of your belongings. Of course, this again depends on the items you own, but it's usually only high-value things taken to pay off your debt.
5. Bankruptcy can’t affect your family & Partners
Importantly, your family and friends will not be affected by your bankruptcy as long as your debts are solely yours. This may be a potential strategy to prevent property foreclosure if ownership is given to a spouse before bankruptcy is filed for many people. Your friends, family, and relatives are immune to any legal action which adds to one of the different pros of bankruptcies UK.
What are the Cons of Bankruptcies UK?
If you're only looking on the bright side of bankruptcy, it looks too good to be true. But, unfortunately, the fact is that it generally is, and individuals must seriously give bankruptcy declaration before doing so.
Bankruptcy may provide you with a new financial beginning, but you risk losing high-value goods such as your automobile or even your family home. It's also a public issue, which means it might be difficult to obtain credit for many years. So it's better to seek professional advice first and understand the important cons of bankruptcies UK stated here.
1. You may be unable to purchase items
Another disadvantage of filing for bankruptcy is that you could lose the ability to buy certain things. In addition, some companies will refuse service if they know you hold a history with them. For example, credit card providers or utilities like gas and electricity. So it’s worth thinking long-term about whether this option is really what’s best for your circumstances before trying anything else.
2. You can’t apply for bankruptcy if you earn over a certain amount
It used to be that those who earned an income above the threshold of £30,000.00 per annum could not have their debts wiped away in the UK through this process. But as of 2014, it is no longer true, and now anyone with disposable income will be able to file for bankruptcy should they so choose.
However, there are still disadvantages associated with filing even when someone meets these guidelines. For example, lenders may refuse small loans or credit cards because they know people have filed before them.
It’s also worth thinking about how much debt you want to be removed from your life by considering all three factors here, which need to be considered carefully before making your final decision.
3. Not every debt gets cancelled
Even after the 12-month bankruptcy period, not all of your debts may be cancelled automatically. Instead, only major personal liabilities are erased, which is good but still leaves you with a long list of bills to pay.
Loans that can't be terminated include taxes owed to HMRC, educational loan repayments, court fines, and any maintenance or child support payments that may be due.
4. Residential loss is one of the major cons of Bankruptcies UK
You won't lose everything, but if you have a house, it's likely to be repossessed and sold off to pay your debts. If you're renting, you must notify your landlord of your bankruptcy status and whether or not you can afford the rent.
5. Business Loss
If you have a company, this may also be taken from you to pay your creditors. The business or high-value company assets may need to be sold off in some situations, and the entire firm might go bankrupt.
6. Damage to Credit Score
A bankruptcy discharge generally lasts for up to two years, after which you must declare bankruptcy for many years. This makes it more difficult to obtain future loans or lines of credit, although it is not impossible. You'll need larger guarantees and will pay higher interest rates.
Conclusion on Pros and cons of Bankruptcies UK
Bankruptcy can be an effective way to wipe your debts clean and have the opportunity for a fresh financial start. Still, for many individuals, it's not always the most appropriate course of action to take if they're facing financial difficulties. Therefore, it's worth speculating the pros and cons of bankruptcies UK closely and finding the possible alternatives if things go wrong.