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Disadvantages of Bankruptcy

Any decision to file voluntarily for bankruptcy should be taken very carefully because the process has significant disadvantages. This page explains what the main drawbacks are.

Social stigma

Unfortunately, all bankruptcies have to be advertised in the local papers and in the London Gazette to make them as public as possible. It means that people will know about your circumstances. For many people, the worst disadvantage of bankruptcy is the stigma of having to declare themselves as bankrupt when carrying out certain transactions.

Loss of your business

If you are declared bankrupt and own a business, it will be closed as soon as the Bankruptcy Order has been made. This means that your employees will be dismissed. You will not be able to be involved in forming, managing or promoting a new company without the permission of the court. If you do start trading again, it will have to be under your old company name.

Loss of assets

When you are declared bankrupt, you have to hand over all valuable assets (including your home) to the Trustee. If you are in the process of leasing or buying a product on hire purchase it will be taken away from you and returned to the original owner.

Closure of bank accounts

Your bank and building society accounts will be closed and your credit cards will be taken away.

Professional issues

You will lose your professional and business status on being declared bankrupt and your employment prospects are likely to be prejudiced. Some public offices will be closed to you as well as certain professions and company directorships.

Loss of credit

If you are made bankrupt then you will not be allowed to try and obtain credit for £500 or above without disclosing your bankruptcy history. Even after your bankruptcy, you will find credit difficult and expensive to obtain.

Alternatives

The alternatives to bankruptcy that may be possible depend on how serious your problems are. If you can afford as little as £150 a month then you could qualify for an IVA instead of having to resort to bankruptcy. The IVA (Individual Voluntary Arrangement) was introduced by the Insolvency Act of 1986 as an alternative to bankruptcy and it gives many people a viable way to avoid the worst consequences of debt problems. ClearStart is able to assess your circumstances so that you can decide which choice will be best.

Further reading:
Bankruptcy | Bankruptcy process | Bankruptcy Law | Alternatives to Bankruptcy | Effects of Bankruptcy | Bankruptcy vs IVA | Disadvantages of Bankruptcy | Bankruptcy FAQs

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