Consumer rights: Bankruptcy is not necessarily the best way to clear your debts

There may be other options for those who find themselves in serious financial difficulties

Bankruptcy allows you to get free of debt and make a fresh start, but it can mean losing your assets, including your home, to pay your creditors. There are also restrictions on what you can and can't do while you're bankrupt. It isn't an easy option.

It is up to the court (usually a county court) to decide whether or not you can go bankrupt or be made bankrupt. You can apply to the court yourself, or someone you owe more than £750 to, can apply.

The court will give an official receiver or an insolvency practitioner responsibility for administering your bankruptcy (the trustee). You have to give that person information about everything you own, what you owe and any money you have coming in.

You'll have to stop using your bank account and credit cards (you may open a new bank or building society account but you should tell them you are bankrupt and they may impose conditions and limitations on your account) and you won't be able to get credit. You will usually be allowed to keep any tools and equipment you need to do your job or run your business, and your household goods, unless they're valuable in which case you may have to replace them with cheaper items. The trustee will tell your creditors how much money (if any) will be shared out in the bankruptcy. Creditors then have to make formal claims.

If you own your home it may have to be sold to go towards paying your debts. If you are self-employed your business is normally closed down. However, you can start to trade again as a self-employed person. Whether employed or self-employed you may have to make contributions out of your income towards your debts for up to three years even if your bankruptcy is discharged sooner.

While you are an undischarged bankrupt it's a criminal offence to borrow more than £500 without telling the lender you're bankrupt, carry on a business in a new name without informing everyone you deal with that you have been made bankrupt, set up, run or be a director of a limited company, or hold certain public roles such as a trustee of a charity or pension fund.

You will be automatically discharged from bankruptcy after a maximum of 12 months unless you don't stick to the rules in which case your discharge could be delayed. Discharge releases you from most of the debts you owed at the date of the bankruptcy order. Once you're discharged you can borrow money or carry on business again.

However bankruptcy isn't the only option if you in serious debt. You could work out an informal arrangement with your creditors such as a debt-management plan. This might work if you have very little money to repay your debts; if you're having debt problems now but are likely to be able to make the normal repayments again in a few months; or you can't afford the full monthly repayments but can afford a smaller regular amount each month. The drawback is that it isn't legally binding. Your creditors may not accept your offers of smaller repayments and they could still ask you to pay in full at some later date.

An individual voluntary arrangement (IVA) is a legally binding version of the informal arrangement and is drawn up by a licensed insolvency practitioner. It's useful for people who can't make full repayments but have some money to give their creditors each month. If your creditors agree to an IVA, some of your debt may be written off.

If one or more of your creditors has applied to the court and been granted a county court judgment against you, the court may make an administration order. Under the order you make regular payments to the court. If you don't pay regularly, the court may cancel the order and your creditors can take action against you separately to get back what you owe them.

A debt relief order is for people who can't pay their debts, owe up to £15,000, don't have assets worth more than £300 and have £50 or less left over each month after paying your bills.

You'll find more information about debt at www.moneyadviceservice.org.uk Helpline: 0300 500 5000 and about insolvency at www.bis.gov.uk/insolvency

***

Q: A firm has offered me work in a call centre dealing with customer queries on a zero-hour contract. I've done this before and like the work but apparently I won't be guaranteed any hours. If I don't work I don't get paid. The worst bit is they expect me to be on call at home or on my mobile and I'm not allowed to work for anyone else in case I'm needed. I've been trying to get off benefits since my last child went to school and I'm desperate to get back to work.

FK, Luton

A: This kind of working can play havoc with everyday life. Legally, if you're on a zero-hours contract you are entitled to be paid for any time you have to be on work premises waiting for work to come up, unless your contract of employment says otherwise. You should be paid your normal hourly rate or, at the very least, the national minimum wage. However, I suspect your contract will say otherwise. It will be difficult to keep on top of the bills and rent, etc, when you have no idea what will be coming in from week to week. You will have to have a reassessment of your welfare benefits every week. However, if the zero-hours contract is a way back into full time work it might be worth a try. The only advice I can give you is to talk over the situation with a welfare benefits adviser and be clear what you are letting yourself in for.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Life and Style
Customers can get their caffeine fix on the move
food + drink
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
Mosul dam was retaken with the help of the US
voicesRobert Fisk: Barack Obama is following the jihadists’ script
PROMOTED VIDEO
Arts and Entertainment
Flat out: Michael Flatley will return to the stage in his show Lord Of The Dance
Michael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Loaded weapon: drugs have surprise side effects for Scarlett Johansson in Luc Besson’s ‘Lucy’
filmReview: Lucy, Luc Besson's complex thriller
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
News
Jermain Defoe got loads of custard
i100
News
peoplePamela Anderson rejects ice bucket challenge because of ALS experiments on animals
Arts and Entertainment
tvExecutive says content is not 'without any purpose'
News
A cleaner prepares the red carpet for the opening night during the 59th International Cannes Film Festival May 17, 2006 in Cannes, France.
newsPowerful vacuum cleaners to be banned under EU regulations
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    .NET Developer

    £600 per day: Harrington Starr: .NET Developer C#, WPF,BLL, MSMQ, SQL, GIT, SQ...

    Data Centre Engineer - Linux / Redhat / Solaris / Puppet / SAN

    £65000 per annum: Harrington Starr: A financial software vendor at the forefro...

    Business Analyst

    £250 - £350 per day: Orgtel: Business Analyst, Bristol, Banking, Business Obje...

    Trainee Recruitment Consultant - IT

    £20000 - £25000 per annum + OTE £40,000: SThree: Computer Futures has been est...

    Day In a Page

    Air strikes? Talk of God? Obama is following the jihadists’ script

    Air strikes? Talk of God? Obama is following the jihadists’ script

    The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
    Ebola outbreak: Billy Graham’s son declares righteous war on the virus

    Billy Graham’s son declares righteous war on Ebola

    A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
    Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

    Not even Jeremy Clarkson is bigger than the BBC, says TV boss

    Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
    Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

    Nick Clegg the movie

    Channel 4 to air Coalition drama showing Lib Dem leader's rise
    Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

    Philip Larkin: What will survive of him?

    Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

    Waxing lyrical

    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
    Texas forensic astronomer finally pinpoints the exact birth of impressionism

    Revealed (to the minute)

    The precise time when impressionism was born
    From slow-roasted to sugar-cured: how to make the most of the British tomato season

    Make the most of British tomatoes

    The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
    10 best men's skincare products

    Face it: 10 best men's skincare products

    Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
    Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

    Mackay, Moody and another grim day for English football

    The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
    La Liga analysis: Will Barcelona's hopes go out of the window?

    Will Barcelona's hopes go out of the window?

    Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape