The global financial crisis has had a devastating effect on some of the world's biggest banks, financial institutions and businesses. More and more of us are facing sometimes overwhelming levels of debt.
While some people choose to take out credit to fund lavish lifestyles which their incomes can't sustain, many people turn to borrowing instead of saving money simply to help keep themselves afloat. If you are borrowing more than you can afford to repay, you could end up with your debts spiralling out of control.
Don't Ignore Your Debts
Many organisations are out there to help you establish a debt management plan and try to work out affordable payments. The worst thing you can do is ignore the problem; it won`t go away, but it can be resolved. However, if you end up facing severe and unmanageable debts, then you may be advised to file for bankruptcy. This essentially draws a line under your debts, although you will be expected to sell certain assets or items of value. You will be under the jurisdiction of your bankruptcy trustee for the duration of your bankruptcy which could be just one year but you need to prove that you have changed your spending habits and learned from your mistakes, as second-time bankruptcy is much harsher.
Easy Way Out?
Declaring yourself bankrupt is by no means a quick-fix solution to a debt problem. It simply is not the case that you can borrow endless amounts of credit, declare yourself bankrupt and then carry on as before. Bankruptcy is a serious situation and one which should only really be considered if there is no other way out of your debt problems. You need to be armed with all of the facts before deciding to go down this path and take as much professional advice as possible.
The Up Side
One of the major advantages of bankruptcy is that it limits your debts to a certain period of time and when you emerge from bankruptcy you will be debt free. You will also be under the umbrella of legal protection regarding your debts, so your creditors will not be able to press you for payments you can`t afford.
The Down Side
However, if you have major assets or equity in your home, then you will be expected to use these where possible to fund your debts, so you need to be aware you could be asked to sell your home. You will be allowed to keep certain essential items, such as tools for employment. During your bankruptcy, you will be exempt from holding any public office or acting as a director of a limited company.
All of your utilities will need to be put in the name of another adult residing at your address or if you live alone, you will have to use prepayment methods, as your name can`t be on the bill. You will also only be able to access a very basic bank account, with no overdraft facility and you will have extremely limited access to credit even after you are discharged, your credit options will be much more restricted.
Also, you need to be aware that not all of your debts are included in bankruptcy, so your mortgage, student loans and court fines will not be covered.
Bankruptcy is a feasible option if you are facing severe debts, you have very few assets and you absolutely can`t clear the debts using your income or savings. It is not something to be entered into simply as a method of getting rid of debts, you will find the restrictions put upon you very limiting. It is also not a recommended option if you have equity in your home, as there is a good chance you will have to sell your property.
There is lots of information and advice out there to help guide your decision. The Bankruptcy Advice Service can offer support and guidance if you are considering bankruptcy.