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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Life and Style
Divers at Bouldnor Cliff underwater site in the Solent off the Isle of Wight, where the silt sample containing the einkorn DNA was found
life
Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Sport
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
News
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
News
people
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
Sport
Jose Mourinho on Sky Sports
footballEXCLUSIVE COLUMN Paul Scholes: It was not a leg-breaking tackle, as the Chelsea manager had claimed
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

    Recruitment Genius: Telesales / Marketing Executive - B2B - OTE £25,000

    £17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

    SThree: Trainee Recruitment Consultant

    £18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Recruitment Genius: Business Control Manager

    £36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower