Bankruptcy is a personal debt solution which is often avoided because of a lack of understanding about what it actually means. We consider the implications of declaring bankruptcy and when the solution should be used.

For many people, just the thought of the word bankruptcy puts a shiver up their spine. Because of a lack of understanding about what bankruptcy actually means, they take the view that bankruptcy is something to be avoided at all costs.

The reason for this is that there are many miss-conceptions about the affects of declaring bankruptcy. However, in reality for many people it can be an extremely effective way of getting out of debt.

Will I lose my belongings if I go bankrupt?

One of the main miss-conceptions is that after declaring bankruptcy you will have to sell all of your household belongings and be left with virtually nothing.

This is simply not the case. Once you are bankrupt, you are normally allowed to keep all of your household goods. This includes all your electrical appliances, furniture and clothing.

The only time that anything in your home is at risk is if it has a particularly great value. For example if you had some extremely valuable antique furniture. However the reality for most people is that they do not have any items of extreme value like this.

Can I have a car in bankruptcy?

You can continue to own and use a car if you are bankrupt. The only issue is that generally speaking the value of the car should not be more than about £1000.

If your car is worth £1000 or less and you need it for getting to work and other reasonable family requirements, then you will normally be able to keep it.

Of course many people have cars worth more than £1000. If this is the case then generally you will have two options. You can sell the car and buy a cheaper one. The excess funds could then be used to pay for the cost of your bankruptcy or given to the official receiver.

Alternatively a third party such as a family member or friend could pay the difference between £1000 and the value of the car to the official receiver. In this way they are buying back the official receivers interest in the car on your behalf and you will then be allowed to continue to use it.

If your car or other vehicle is worth more than £1000 but is a tool of your trade. For example it is a commercial vehicle or used as a taxi then you will be able to keep it.

Will I have anything left to live on?

Another myth when thinking about bankruptcy is that the court will somehow take all of your wages and you will be left with nothing to live on.

There have been headlines over the past few years in the press suggesting that if you go bankrupt you will be left with £10 a month. This is simply untrue.

At all times when you are bankrupt you remain in control of your money. You are allowed to operate a bank account and you are responsible for maintaining all of your living expenditure payments.

You will only have to make payments towards your debts if you can afford to do so.

Once you are bankrupt, the official receiver will review your income and your reasonable living expenditures. They can only ask you to pay any extra money you have left over after your living expenses are paid for and then only for a maximum of three years.

What if I am a home owner

One of the major miss-understandings is that if you are a homeowner you will automatically lose your home. This is simply not the case. However you do need to consider the implications of bankruptcy a bit more carefully.

The key thing to think about is whether there is any equity in your property or not. If there is little or no equity in your home or it is in negative equity, then you will almost certainly be able to keep the property.

If you do have considerable equity in your property, this does present more of a problem because the official receiver is entitled to realise that money for the benefit of your creditors. However even then it may not mean that your property has to be sold.

The best thing to do if you are a homeowner is take advice from an expert before deciding to declare bankruptcy.

What about the stigma of bankruptcy?

A key concern for many people when they think about Bankruptcy is what other people will think. However the reality of bankruptcy today is that it is just as private an agreement as the alternative popular debt solution the Individual Voluntary Arrangement.

Bankruptcy is not advertised in the local newspaper. This rule changed a number of years ago. As such it is extremely unlikely that local friends or neighbours will find out you are bankrupt unless you tell them. Your employer will not be told.

Once you have declared bankruptcy your name and address are listed in the Insolvency Register. This register is publically accessible via the internet.

As such if someone wants to find out if you are bankrupt, they can do so relatively easily. However the key is that they would need to make the specific enquiry, they are unlikely to find out by accident.

Bankruptcy should not be taken lightly

Of course, declaring yourself bankrupt is not something that you should undertake lightly. The solution is by no means right for everyone and you need to fully understand the implications for your own personal situation.

However the reality is that the affects of bankruptcy have changed considerably over the last few years.

Nowadays bankruptcy should no longer be considered as a last resort solution. For many people bankruptcy is certainly the best solution to resolve their personal debt problem.