Don't be afraid to file for bankruptcy

Before we begin, let me make it perfectly clear that although bankruptcy is one answer, in most cases it is the last resort and it would be prudent to speak to a financial expert or the National Debtline who will give you excellent and impartial advice for free before entering into anything like this. However, this Hub is written by someone who has been a bankrupt and emerged unscathed.

Don't be ashamed of debt, it happens to the best of us

In 2003 I filed for Bankruptcy. This was partly my fault but I was also the victim of circumstances. Foolishly I hadn't kept an eye on my finances and being self-employed I did not recieve sickness pay. When I fell ill for a month, that was it, I simply couldn't pay my way out of it and had no option. A friend of mine in London once said 'We're all one month away from bankruptcy' which seemed like a silly statement at the time, but if you think about it, how would your finances look if you were to lose a month's salary? Unless you're very well organised and have sizeable savings, then the answer is that you're in trouble. In that unpaid month you've got to pay for food, bills, direct debits and standing orders and if it happens to be at Christmas time or it coincides with the car breaking down? It only takes a few added expenses to tip things over the edge. Now I'm not going to sit here and tell you Bankruptcy is a good thing, and it certainly isn't for everyone, but it is an option, and you really need not worry about the stigma. Bankruptcy is there to protect you from creditors who really don't care what happens to you so long as they get their money. Debt is all consuming and it can destroy your life and your relationships. Bankruptcy is not the only option, but when all else fails, it is there for you and it will ease your pain, believe me.

Who should consider bankruptcy and who definitely shouldn't

If you own a house, and you have a family, I would avoid this route as best you can. To pay the creditors the Insolvency Service will make you sell the house and sometimes the car and other assets too. This could make your life very difficult. However there are other options, particularly if you have a property because you can secure borrowing against it. Another option is an IVA (Individual Voluntary Agreement). If, somehow, you can pay your debts, no matter how hard it may be to do so, do it! However, if you don't own a house, don't have any dependents and really just want to clear your debt, this is a viable solution. When I filed for bankruptcy I wiped away nearly fifty grand of debt in an afternoon ... it was a liberating experience I can tell you.

How do you do it?

I can only speak for the UK as that is where I live and that is where my Bankruptcy petition was heard. First things first, visit the Insolvency service website which will answer most of your questions in far more detail than I am able to. Here you will find out which forms to fill in, which court to go to, contact numbers etc. Read this information thoroughly, the website is extremely detailed and has a lot of information about the alternatives to Bankruptcy. Once you have become a bankrupt then you are issued with a reference number and this is very important. When creditors come calling, and they will keep calling until all the paperwork has been done and the Insolvency Service have contacted them, just quote this reference number and it’ll soon shut them up.

The Down side

Okay, it's not all rosy. When you do this, none of the organisations you list as your creditors will ever have anything to do with you again. Your credit file will be a bit dicey for the next four or five years too so you'll have a problem borrowing. For one year after the event you'll effectively be 'A bankrupt' but after that you are 'discharged' and lose that title. You'll never be an accountant or a company director ever again either (although there are ways around this) and to be honest, if you've got yourself into this situation accountancy probably isn't for you anyway.

The upside

When you become bankrupt you are effectively going into liquidation. A sum that you can afford is paid to the creditors every month for five years, and contrary to popular belief, they do allow you to continue living your life, you are allowed to have reasonable living expenses and you'll find it surprisingly easy to setup a bank account too. Because you're a bankrupt you won't be allowed to have any credit so you have to pay for everything in cash which is pretty strange to begin with, but it sure makes you aware of what you're spending. When you run out of cash that's it... no overdraft, no credit cards ...so you learn financial discipline.

Will life return to normal?

Of course. Within three years of the bankruptcy I was offered a debit card, a credit card and so on. My attitude to money had changed significantly so I was a lot more carful with these things. Since then I have been able to gain credit, and my credit score is actually very good. So all that horribleness goes away.

Conclusion

I decided to write this Hub because I know how bad it is to live with debt. It overtook my life to the extent that I could talk and think about nothing else. Whereas, in an ideal world, if you owe money you should pay, it has to be said that it is very easy to fall prey to creditors who will lend you money without advice on an unsecured basis. In some ways this lending is very irresponsible and high risk. I really hope this doesn’t happen to you, but if it does, I also hope that my story helps you to realise that bankruptcy is not the end of the world, it’s just a setback. Consider it as a caution from life and learn from the mistake.