The first golden rule if you’ve got big debt problems…

The first golden rule if you have major debt problems is:

‘you should first look at personal bankruptcy because if you’re really in a lot of trouble with money, it’s almost always the best option’.

But I hear you say ‘isn’t this is the opposite of what you’d expect?  And what most debt advisers will tell you?

Yes, that’s right, so why do I say this?

  • In three quarters of cases all you lose is your unsecured debts: you lose no assets, not even your home;
  • It costs less than a thousand pounds to go bankrupt, far less than almost all of the other solutions you may have available;
  • You’re in bankruptcy for just twelve months – it will pass very quickly indeed.  Compare this to how long you have been juggling your finances.  IVAs, often recommended by debt advisers, insolvency practitioners and their ‘finders’ are typically for 5 years – can you see forward this far? Can you guarantee you’ll complete the IVA?
  • Often bankruptcy is far less risky a solution than your other options for dealing with your debts because you can learn how the process works, you can assess the outcome before you go into it – that’s because there are far fewer areas for compromise or negotiation than other solutions you may be thinking about;
  • There are no messy negotiations with your creditors – if you petition yourself, your bankruptcy is simply imposed on them, your creditors don’t get a choice.  They do in other solutions;
  • In just one quarter of cases – Insolvency Service figures, not ours, the Official Receiver takes a share of your ‘surplus income’.  He does this for 3 years.  Compare this with a typical IVA – 100% of cases, 5 years.  But, and it’s very important you note this, in a bankruptcy no one can make you work as long or as hard as you did before.  If you want to take some time out to re-assess where you want to take your life, you can.  You can take a lower paid job that’s less stressful.  You can reduce your income for the year of your bankruptcy, avoid an ‘income payments order’ – and once you’re discharged, it’s too late for the Official Receiver to seek any money from you, you’ll keep all the money you earn for yourself.  It’s a case of one year of ‘pain’ for ‘later gain’.  Generally only those who don’t bother learning how ‘income payments’ work in practice end up paying them, so learn about them!
  • If you are lucky enough to enjoy a windfall, say a legacy or a lottery win, you’ll only have to pay it into the bankruptcy – that is to say you can’t keep it – if you became entitled to it in the year of your bankruptcy.  Become entitled after you’ve been discharged and you keep it all!  Compare this with IVAs – 5 years-  and DMPs -unlimited.  I presume you’ve not got a crystal ball?  The point is that by petitioning for your own bankruptcy can mean you actually protecting your family’s wealth!
  • Bankruptcy, unlike IVAs and DMPs, are a catalyst for change – you are likely to live your life differently and ditch any bad habits in a bankruptcy;

Come back here next week for golden rule number 2!

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