Coping with bankruptcy

Bankruptcy is often seen as a last resort

Bankruptcy involves the closure of any business you run and the dismissal of your employees.

You will have to give up any possessions of value including your interest in your house, and you will be subject to certain restrictions.

It's imperative to get advice as soon as you run into serious difficulties, certainly before any bankruptcy proceedings begin.

Firstly go and see Citizens Advice or visit an insolvency practitioner. An insolvency practitioner must be licensed, they are usually accountants or solicitors and can be appointed trustee instead of the official receiver. They are then responsible for disposing of your assets and making payments to your creditors.

You will generally be freed from bankruptcy after three (or sometimes two) years. This is known as "discharged". Your credit rating will be affected even once you are discharged and you may find it difficult to obtain credit, such as through a credit card, or even open a bank account.

Your options

The alternative to bankruptcy is an 'informal arrangement or 'family arrangement'. If you know that you cannot pay all your debts or you need more time, you could consider writing to your individual creditors to see if you can reach some compromise.

The disadvantage with an informal arrangement is that it is not legally binding so your creditors could ignore it later on and want you to pay in full or immediately. The Citizens Advice publish several leaflets and can help you to make this kind of arrangement.

An Individual Voluntary Arrangement (IVA) is a formal version of the informal arrangement. It means that you can make a formal proposal to your creditors to pay part or all of your debts.

You need to apply to the court and you must be assisted by an insolvency practitioner. Any agreement reached with your creditors would be binding on them.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.