Those concerned with debt are well advised to take the time to learn as much as possible about the options available to them. In this section you will be able to find descrptions written by subject experts of the various solutions. As well as describing how they work you will be able to learn about the strengths and possible drawbacks of each option. Which should you choose? That depends on your circumstances and priorities. We trust that this section of Debt Divas will give you the information that you need to make an informed choice.

The “laywomans” guide to bankruptcy

In many circles, bankruptcy continues to be viewed as a negative and bad procedure, and is surrounded by myths such as “I will have to hand my passport over”, “I cannot have a bank account” or “I could not cope with the stigma of having my name in the paper”. In truth, bankruptcy is an ideal solution for individuals who cannot afford to repay their debts, and have little or no disposable income to be able to offer an ongoing repayment plan with their creditors –either through an IVA or a DMP.

Bankruptcies are advertised in your local paper, and if you are lucky you will be awarded a column of about 4cm x 1cm somewhere in the middle of the situations vacant and adult services pages! You are perfectly entitled to retain a working bank account (but no overdraft!) and your passport will be left with you intact. In certain circles individuals may still feel some stigma, but these days the vast majority of people who declare themselves bankrupt, do so reluctantly because they have been left with no other choice.

A bankruptcy order may be obtained by any creditor owed more than £750, or you can personally apply for your own bankruptcy at your local County Court. Either way, assuming a bankruptcy order is granted, the Official Receiver – a government official – will then be appointed your Trustee and will contact you for details of your financial position. Subject to certain exemptions listed below, this means that your assets will be sold and the money raised used to pay your creditors back as much as possible. Occasionally, the Official Receiver will appoint an Insolvency Practitioner – like Melanie and Sue – to act as Trustee in their place, but this is usually only done when the case is complex.

The items you will be allowed to keep include:-

• Ordinary household contents
• A modest motor vehicle (valued at no more than £2,500_
• Tools of the Trade – things that you need to run your business
• Pension (subject to certain exceptions)

If you have equity in your property, this may result in the property eventually being sold – but the Trustee will do their best to avoid this and will try and work with you to ensure you retain your home, and this could be done by arranging for a family member or friend to buy out your interest. The law currently discourages a Trustee from taking steps to force a sale of your property through Court during the first 12 months of the bankruptcy, so you have a reasonable time to deal with this important issue. In any case the Trustee has to resolve this within 3 years from the date of your bankruptcy order, and if he/she fails to do so the ownership of the equity reverts back to you legally. If the value of your equity is less than £1,000, the Trustee will not be able to force a sale.

If you have surplus income above the needs of yourself and your children, you will be expected to make monthly contributions to your creditors for up to three years and can be ordered to do so by the Court. Also if you win or inherit anything during the bankruptcy, such as an inheritance or lottery win, that too will be available to your creditors.

In most cases these days, the bankruptcy ends after one year, and this can even be sooner at the discretion of the OR. So far as you are concerned you no longer have any debts – apart from fines, Student Loans or CSA arrears which cannot be left behind. Even if some of your assets remain unsold after the end of your bankruptcy, they will still remain available to your creditors when your Trustee can sell them. The existence of your bankruptcy will remain on your credit file for six years from the date of the bankruptcy order.

There are several restrictions you have to observe whilst bankrupt, the main ones being that you cannot take credit of more than £500 without advising the lender that you are bankrupt, you cannot act as a company director, a Member of Parliament of a Justice of the Peace. For most people these restrictions are of little consequence, as most people swear that they will never seek credit ever again!

Bankruptcy may have different consequences for different people. A professionally qualified person, such as a solicitor or accountant, may have her practising certificate suspended because of her bankruptcy, and a bankrupt cannot act as a company director. People in such a position may well be best advised to seek an IVA, and you can even put forward an IVA if you have already been made bankrupt under certain circumstances.

In summary bankruptcy is not a punishment or something to be ashamed of, on the contrary it is a sanctuary for indebted individuals to avail of in order to deal with their creditors. Many famous women have held their celebrity heads up high and entered bankruptcy proceedings for very good reasons.

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