Is bankruptcy the best debt management solution?

Bankruptcy may seem like a quick and easy way to start from scratch but when it comes to finding a debt management solution, it isn't always the best option.

The number of people declaring bankruptcy, rather than having it forced upon them, has doubled in the past year. And an outstanding 23,351 people were declared insolvent during the first three months of the year according to the Insolvency Service.

The increase in people seeking a debt management solution is likely to be a major factor in the increase in personal insolvency. Also, the rise in the number of people choosing bankruptcy as a solution to their debt management could be down to the fact that bankruptcy, like debt, has lost much of its stigma.

Culture of debt

Many experts believe the problem will only get worse as we live in an increasing culture of debt. More and more consumers are looking for a debt management solution.

Easy option

Bankruptcy may seem like a quicker solution to debt management, but despite it becoming more and more commonplace, it is still a difficult route. Court proceedings can lead to losing your home. And debt can cost more than your bank balance - health and social problems such as anxiety, depression, stress and even crime and suicide are now being recorded as a result of debt.

What happens when you are made bankrupt?

Bankruptcy is a legal status that usually lasts for 12 months. It can be a way of clearing debts you can't pay. When you're bankrupt, you could lose any property, possessions or excess income to pay off the people that you owe money. At the end of the bankruptcy period, most of the debt is cancelled.

How do you become bankrupt?

A court can declare you bankrupt or you can file for bankruptcy yourself by obtaining a debtor's petition from your local county court.

Disadvantages

Being bankrupt means there are restrictions on obtaining credit, being a company director or working in certain professions. Most people who have a regular income will also be required to make monthly payments for three years towards their debts based on what the Official Receiver thinks they can afford.

Bankruptcy is often seen as the ultimate debt management solution, wiping the slate clean. However, you will still have to meet ongoing commitments such as rent or debts incurred after you become bankrupt.

If you are bankrupt the disadvantages are:

• Your assets can be sold, including your home, car or possessions.
• Some professions such as police work, the army or government jobs may be denied to you.
• You are not allowed to become the director of a company.

Is Bankruptcy the debt management solution for you?

The fact is there is no simple answer. Bankruptcy is often considered a last resort, debt management solution; However, there are other alternatives you should discuss with an independent financial adviser, such as debt management, which does not have the same long lasting negative effects.

For advice on which debt management solution is most suited to your individual circumstances, visit MRA Debt Help at www.mradebthelp.co.uk, or call 0800 612 92 23.

For independent financial advice, visit our sister company, Mike Robertson Associates, at www.mraltd.com. You can email an independent financial adviser for professional help, or call 0870 803 1995.