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If you’re thinking about filing for bankruptcy, there are pros and cons to consider. While the idea of discharging your debts might sound great, it might cost you in other ways.
Keep reading for a look into the pros and cons of filing for bankruptcy, plus whether you’re a good candidate for it.
The main advantage of filing for bankruptcy is that you will no longer have to deal with creditors you can’t afford to pay. Once your bankruptcy has been approved, an administrator will be appointed to contact your creditors and deal with any pending debts.
Bankruptcy also has the following advantages:
- You can keep some of your assets when you declare bankruptcy. These include tools for your job or trade and household items. If your car is worth £2,000 or less and you need it to get to work, you can keep it too.
- Pension schemes are protected from bankruptcy.
When you file for bankruptcy, you will lose a lot of your assets. For example, you might be forced to sell your house or even your business. Having a bankruptcy in your file means you will no longer be able to hold certain positions, including being a policeman, director of a company or even an accountant.
Bankruptcy also has the following disadvantages:
- You’ll have to pay for the bankruptcy process out of your own pocket. If you don’t have the money to file, you can’t proceed.
- Bankruptcy won’t get rid of all of your debts. Gambling debts, child maintenance, tax debts, and fines cannot be written off.
- The bankruptcy will appear in your credit report for six years. This will affect your credit score and your chances of obtaining a loan and other financial products.
What to know before you file
Before filing for bankruptcy, consider whether it’s a good option for you. You might be a good candidate if you truly can’t afford to pay off your debts and don’t see the situation improving.
However, bankruptcy might not be a good option if most of your debts cannot be written off. For example, if your debt is connected to student loans, magistrates’ court fines, child maintenance payments, or social fund loans, you will still owe these after filing bankruptcy.
If you’re still not sure if bankruptcy is the best option for you, try the online assessment from the Debt Advice Bureau. This can help you figure out whether you might be better off pursuing other options instead, such as debt consolidation or debt relief.
Consequences of filing for bankruptcy
Bankruptcy has both short- and long-term effects. As soon as your bankruptcy goes through, it will be on public record. Creditors, banks, local authorities, and utility suppliers will all have the right to ask you about it. You will also have to disclose to any creditors your bankruptcy status if you want to borrow £500 or more or apply for a mortgage. Having a bankruptcy in your record makes it more difficult to access any kind of credit in the future.
Declaring bankruptcy might also affect your career. Solicitors and public office positions require a clean financial background. You will also not be able to become the trustee of a charity if you have declared bankruptcy.
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