Bankruptcy

[rachela500]

A family member is in some debt (around �15-20000 I think). He is likely to be paying it off for 10-20 years I imagine. Is bankruptcy a good idea? He is married with two children and lives in a rented house (not council). His only asset is a car, which he needs to get to work. I think he should do it and make a fresh start but he is nervous about the idea. It is unlikely he will ever be able to afford a mortgage in the future anyway. What do you think?

[DMA]

I have a mate who was sacked from his job and he had �24k debt. I tried to convince him that he shud go bankrupt as he was in low paid jobs and had no assets and was unlikely to ever get a mortgage. He had no kids or wife so it wud have been ideal for him to go bankrupt. He opted against it and managed after 6 months to get a low paid job. he is paying his loan at about �200 per month as opposed to the �550 he shud be paying. This is still leaving him skint. His credit rating has apparently already been hit as a result, so it has not benefited him.

After one year of bankruptcy he wud have been discharged with no debts but unlikely to ever get credit again. It wud have suited his case to go bankrupt but he chose to do the "honest" thing.

It may not suit your relations individual case. Do they want credit in the future? That is the question they need to ask before deciding.

[Harley]

Married with 2 children but you don't give his age.In my experience he is unlikely to ever earn enough to pay off his debt and save up a deposit on a house.As he gets older the mortage term gets shorter so he would need to make accelerated payments or work past retirement.

He should declare himself bankrupt, they will let him keep his car for going to work

[rachela500]

Thanks for the replies.

He is 33. I think he earns about �20,000 (inc overtime) and is unlikely to ever be highly paid. I don't think his wife wants to work again as she just seems to want to have more kids.

Does bankruptcy mean you can never get any credit again? Even small loans or low limit credit cards?

[spacechimp]

I don't think you're allowed to be a parent governor at a school or auditor for any clubs if you have been declared bankrupt.

[WoWo]

"Does bankruptcy mean you can never get any credit again? Even small loans or low limit credit cards?"

More or less yes in the shorter term (5-10 years). The rules were recently relaxed so that rather than having to wait 3 years in some cases you now only have to wait for a year before being discharged.

People think that once you are discharged you are free to get loans again as you please but the reality is that any credit rating you may have had will be gone completely and it's unlikely that people would risk giving you any loans/credit cards at all, at least until you had proved that you had changed your ways.

[r4zorb4ck]

Possibly a IVA (Individual Volentarey Aggreement) would be a better option.

All intrest is ceased by creditors and they are not allowed to contact you. You pay of a reduced amount each month for five years.Then if you have no assets the rest of the debt is written off. You credit rating will be affected but it shows to creditors that you are willing to pay and is looked upon better than Bankruptcey for future credit. It is a form of insolvency but not as extreme as bankruptcey. Bankruptcey is the last resort.

Renting houses becomes difficult. They take any assests off you. Any inheritance that you recive or would recive they can also take that. They also publish names of bankruptees in the local papers. Very humiliating.

Please tell your family member to look at other options, such as a IVA or Debt Managment before going through the Bankruptcey process it is not a nice process. It is not as simple as go bankrupt and all problems are solved.

Hope this helps

[gammaray]

Even as a bankrupt your family member would be asked to make some contribution to his creditors from his salary. This can last three years even if he is discharged after 12 months. Bankruptcy is not humiliating it's actually liberating. It does have down sides but frankly the benefits of a good night's debt free sleep far out weigh any of the numerous disadvantages.

The fact that you don't have access to loans and credit cards afterwards is frankly a plus point if your previous existance involved ramping up credit to an uncontrollable level.

[peterd]

try www.debtquestions.co.uk

[themas]

I agree with gammaray. The disadvantage of a Debt Management Plan in his case is that he would be in financial purgatory for 10+ years and his credit rating would almost certainly be hit for all that time. It's not impossible to build up a credit record after bankruptcy but it is difficult & takes time - e.g. start with a deposit based credit card, or HP on a car.

He needs to check his tenancy agreement - some still have a provision about bankruptcy in them. If he needed a new tenancy after bankruptcy he might have to have a guarantor.

His car should be OK unless its particularly valuable, unless the OR decides he could reasonably use public transport to get to work.

Look at www.insolvency.gov.uk & download their leaflets on bankruptcy.

[hev]

Bankruptcy is the best bet. As he has no asset and could be discharged in 12 months. I am in an IVA and it is crippling. My payments are 700 a month and because I have a house if I still owe anything at the end of 5 years I have to remortgage my house for the rest. So the adverts about writing it off aren't strictly true.I only chose this way to keep my house but honestly I should have let them take it. If he does decide to go bankrupt it may be difficult to rent a place but if he stays in his accomodation the checks have already been made so they wont check again. Tell him to do it and make a fresh start we all make mistakes