Is bankruptcy ever a good option to take?

Published by on 05 February 2013.
Last updated on 05 February 2013

Q

I'm four years into my five-year individual voluntary arrangement (IVA). I recently lost my job so I'm behind on my monthly payments of £200.
As I am single, do not own a property and have no other financial commitments, would being made bankrupt be so bad?

From:
ND/Cardiff

A

You have two options for your IVA if you have fallen behind on payments.

You could ask for it to be modified or allow it to terminate. Modification means asking your insolvency practitioner to make a new repayment proposal to your creditors, based on what you can now afford. The creditors would then decide whether to accept it or not.

Requesting a modification could result in your IVA term being extended and further fees being charged.

If your IVA terminates due to missed payments, the insolvency practitioner can either allow all of the creditors to pursue you individually again or, if it is in the best interests of the creditors, declare you bankrupt. As you have no major assets it is unlikely they would petition for your bankruptcy.

Termination would put you back to square one with your debts and give you the option of voluntary bankruptcy, meaning any major assets you own can be sold to pay off your debts. After a period of time, usually one year, you will be discharged and your debts written off.

Long-term implications

Although you can be discharged within 12 months, bankruptcy remains on your credit reference for six years and may affect your ability to obtain credit in future. However, your IVA could already have had this impact.

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If you are renting you should be aware that some tenancy agreements contain a termination clause in relation to bankruptcy.

If you have any disposable income you can also be issued with an income payments order, which means you will pay a portion of any available income towards the debt for up to three years. It is also worth noting it costs £700 to apply for bankruptcy.

It's an ideal solution for some people but due to the impact it can have on housing, assets and even certain types of employment, it is advisable to get advice before committing to it.

This article was written in response to a reader’s question. If you have a financial or work/career question that has left you scratching your head ask our panel of experts who will aim to shine some light on the matter.

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