Is Bankruptcy The Answer?

We answer five questions about bankruptcy, including 'Is it right to go bankrupt?' 'What can they take?' and the big one: 'Is bankruptcy the answer?' Gulp!

Here, I'm going to look at five questions related to bankruptcy:

Is it wrong to go bankrupt?
How do I go bankrupt?
What can they take?
Is it hell, going through the bankruptcy process?
Is bankruptcy the answer?

To answer them, I'll refer to messages posted by debt experts and former bankrupts on our unbeatable free debt resource, the Dealing with Debt discussion board.

Is it wrong to go bankrupt?

The majority of people who go bankrupt really wish that it wasn't their best option, but usually it is.

Fool board user Blue119 summarises it nicely. He accepts that we have responsibilities: 'Normally my position is that debts should be repaid if you can possibly do it.' But he also says: 'The bankruptcy laws are there for people who have genuinely dug themselves into a hole that they cannot get out of.'

SON1C says something similar:

'It is very honourable to soldier on and attempt to pay back your creditors and I agree that you should always try your best to do so but if you are in serious debt and having considered all of the alternatives there is just no way that you can manage and you are making yourself ill with worry and you can't provide for your family, then please consider bankruptcy- it is a right that you have in Law.'

Read the full messages:

Blue119's Debt Advice welcome/needed
SON1C's What Can I Do To Them?

How do I go bankrupt?

The process, in short, is like this:

Go to your local County Court for a bankruptcy pack.
Fill in the forms and take them back to the Court. A clerk will check them.
Pay the fee to the court. (Currently the bankruptcy fee is £485, £150 of which is the court fee, which can be waived if you're on income support. Fees tend to go up in April each year.)
You'll next have a five minute chat with a judge in his/her office, who'll ask a question or two. If satisfied, he/she will make the bankruptcy order.
You then go the office of the Official Receiver, usually straight away. You fill in more forms and answer some more questions.
You might have to make some payments for up to three years, but you'll normally be 'discharged' from bankruptcy within 12 months.

That's the outline. But you can read more about each step in great detail with these two fantastic messages:

SON1C's What Can I Do To Them?
Manzanilla's Bankruptcy - questions and practicalities

What can they take?

They must leave you with your essentials, so a better question is what can't they take? Here's the short answer:

They can't take your spouse's assets.
You don't necessarily lose your home.
You do not automatically lose your car.
You can carry on in business (although you can't be a director in a limited company).
You can have a bank account.
You can still apply for credit.
They won't take your pension.

Read a lot more detail in:

SON1C's What can they do to me? (Scroll down to point 6.)

What's it like to go through the process of being made bankrupt?

For most people, it's no way near as bad as you think. Court staff, including judges, are sympathetic. You also need to meet the Official Receiver after the judge to talk about your finances, but these guys don't judge you either. Most stories from the discussion board include a great deal of relief after the event. What's more, our board users' comments reveal that you normally gain a healthy fear of borrowing money unless it's absolutely necessary!

Read stories from people who've been to court and visited the Official Receiver:

NotOwned's THANKYOU - Had My OR Meeting
Headinsand's HELP - interview with the OR on thursday (and DiagonAlley's response to that)
Cuteykat's Bankruptcy Day Came

So, is bankruptcy the answer?

If your other solutions are unrealistic then yes, it is. You should get advice for your specific situation, perhaps from our Dealing with Debt community, where you can post anonymous messages and get quality, friendly, independent feedback. (I can't praise the helpful, knowledgeable people on this board enough.)

Manzanilla says: 'The simple answer is that you should go bankrupt as soon as possible after you have decided that bankruptcy is the best solution for you.

'Having said this, if you are in any doubt about the bankruptcy decision, do not rush into it. If you think everything might look different in a couple of years, for example when your children are at school and you can get a job, then you need a temporary solution to your debt problems. You can't change your mind about bankruptcy, so if you think another solution might work, give that a go first.'