Bankruptcy is the worst-case scenario when dealing with debt problems and should only be implemented if it is the only solution available.

If your are ever faced with the prospect of bankruptcy you should look at alternatives such as the Individual Voluntary Arrangement procedure (IVA) as soon as possible.

Bankruptcy is one way of dealing with debts you cannot pay. It has two aims:

• To free you from the pressures of overwhelming debt so you can make a fresh start

• To share your assets out fairly among your creditors (people you owe money to)

Once a bankruptcy order has been made against you, your creditors can no longer pursue you for payment. However bankruptcy is publicly advertised and so can be distressing.

HOW BANKRUPTCY WORKS

Anyone can go bankrupt, including individual members of a partnership. An individual can be made bankrupt in one of three ways.

• Voluntarily - You declare yourself bankrupt

• Involuntarily - By the creditor you owe money to (£750 Minimum)

• By the supervisor or anyone bound by an IVA

The Courts are officially responsible for making a bankruptcy order against an individual, although this is done at the request of either the individual or one of his/her creditors.

The assets of a bankrupt individual then fall under the control of a Trustee. This will be either the Official Receiver (a civil servant and officer of the Court), or a licensed Insolvency Practitioner.

The Trustee is responsible for uncovering as much as possible about the debtor's assets and liabilities and then maximising returns for the creditors from the assets available, within certain guidelines.

A bankruptcy order can still be made even if you refuse to acknowledge the proceedings or refuse to agree to them. You should therefore co-operate fully if bankruptcy proceedings have begun against you.

If you dispute the creditors claim, you should try and reach a settlement before the bankruptcy petition is due to be heard. Trying to do so after the bankruptcy order is made is more difficult and expensive.

WHAT BANKRUPTCY MEANS

• You lose control of your assets

• You cannot obtain credit for over £250 without permission

• Your credit is affected for many years

• You may be publicly examined in court

• You cannot act as a company director

• You cannot take any part in the promotion, formation or management of a limited company without the permission of the court

• You cannot trade in any business under any other name unless you inform everyone concerned about your bankruptcy

• You cannot practice as a Charted Accountant / Lawyer

• You cannot act as a Justice of the peace (JP)

• You cannot become an Member of Parliament (MP)

• You cannot become a member of the local authority

WHAT ARE THE ADVANTAGES?

• Bankruptcy provides relative peace of mind and freedom from creditors

• Possible automatic discharge after one year (or sooner in some cases) rather than the full 3 year period

WHAT ARE THE ALTERNATIVES?

• An Individual Voluntary Arrangement (IVA) - a formal and legally binding arrangement between you and your creditors. Learn more about Individual Voluntary Arrangements

• A Debt Management Plan - using a specialist service to reach agreement with your creditors and plan an affordable monthly repayment. Learn more about Debt Management Plans

• A Debt Consolidation Program - put all of your debts together into one smaller monthly payment. Learn more about Debt Consolidation

At Debt Free Helpline we can advise you on all of your options for dealing with problem debt.

Fill in our enquiry form or call now on 0800 881 8981 to speak to one of our advisors for free debt management advice.