Insolvency is the term we should use to describe the difficulties businesses or individuals face when they are having money problems, whereas bankruptcy refers to the position an individual faces when unable to pay their debts. The two terms tend to be used interchangeably, and the basic problem is essentially the same.
To be made bankrupt, a court has to issue a bankruptcy order against you. This can happen for 2 reasons:
- you can apply to the court if you're unable to pay your debts
- your creditors (the people you owe money to) apply to make you bankrupt if you owe them £750 or more
When you're made bankrupt:
- your assets can be used to pay your debts
- you must follow certain rules called the 'bankruptcy restrictions'
- your name and details will be published on a bankruptcy register called the 'Individual Insolvency Register'
- after 12 months you're usually discharged (freed) from your bankruptcy
Once you have been made bankrupt, you don't have to deal with the people you owe money to (your creditors). An official called the Official Receiver takes control of your money and property, and deals with your creditors.
When the bankruptcy order is over, you can make a fresh start and the money you owe is usually written off. In many cases, this can be after only one year. Creditors have to stop most types of court action to get their money back following a bankruptcy order.However, there are disadvantages to going bankrupt. These include the fact that it may cost you up to £700 to go bankrupt, you will lose your home if you own it and may lose other valuable possessions too.
Bankruptcy might not be your only option and it might not be the best one for you.
If you are faced with bankruptcy, you'll need expert advice. You can get advice about your debt problems and bankruptcy ASAP.