The Bankruptcy Act also called the Insolvency Act. It provides a way out of debt for people who are insolvent. You are insolvent if your unsecured debts outweigh your assets, including property and vehicles.
Under the Insolvency Act, if the court approves your bankruptcy, your unsecured creditors are legally bound to stop charging you interest and cannot contact you or take legal action to recover funds. Bankruptcy allows people in serious financial difficulty, with no other way to clear their debts, a fresh start.
Bankruptcy terms and restrictions
The time a personal bankruptcy normally lasts is usually 12 months, although it can be longer. Throughout this time certain financial restrictions will apply to you.
For example, if you are made bankrupt you cannot obtain credit of more than £500 without disclosing your status to the lender. Also, if you are self employed, you cannot trade in a name other than the one in which the bankruptcy order was made, or act as a director of a company.
Income and assets
Bear in mind, though, that the Insolvency Act is also designed to help the people you owe money to. In some cases, you may have to repay monthly payments to your creditors from any available income you have after you have paid your essential household expenditure. This is known as an income payment agreement and could last up to three years.
Another point to consider is that your assets could be sold to pay creditors. However, you will be allowed to keep anything deemed essential for day to day living.
Professional advice
Your credit file will also be severely affected for six years, which will affect your ability to borrow money. Bankruptcy is not something to be taken lightly and you should not take any steps without getting professional advice.
Use our online debt counselling service, CCCS Debt Remedy, for free, impartial advice on all kinds of debt problems and the best debt solution for you.
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