How Do I Know If I Need To Go Bankrupt?
How Do I Know If I Need To Go Bankrupt?
This is an age old question, and one may people have asked themselves, should I go bankrupt?
Not to answer a question with a question, but in counselling and talking with people over the years, I have always said, “if you think you need to go bankrupt, you probably do”.
The facts are that many people who decide to go bankrupt have been struggling with bills and debt for years, and also wrestling with the fact they may need to go bankrupt.
Entering into bankruptcy is something not to be taken lightly, however, for some it is the best option to resolve their debts/accounts, and to get on with life.
There are always alternatives and options other than bankruptcy, but these options and alternatives may not be as quick and decisive as going bankrupt.
The fact is that bankruptcy is the quickest way to get out of debt and get a fresh start. However, there are some implications by going bankrupt that some may wish to avoid.
Especially if you have assets such as property, which if these assets have value, or your property has equity, you could lose this if you were to go bankrupt.
We are just going to have a quick overview of bankruptcy for today, however, in future writings, we will look more in detail and in depth at alternatives to bankruptcy, and who those alternatives may appeal to.
As always, prior to going bankrupt, get professional advice, and get a full understanding of what you are entering into, and how it may impact and affect you now, and also in the future.
Difference Between Bankruptcy and Insolvency
Many people do not realise or understand the difference between being insolvent and going bankrupt. They think that both are one in the same, and while closely linked, they are different concepts.
People may find themselves in debt, over extended, and struggling with bills and debt through a variety of ways.
It doesn’t matter how you get there, you are there, struggling and unable to pay all your bills.
This is where a person or business, may find themselves insolvent.
Insolvency is where your liabilities (what you owe), exceeds your assets.
An example may be someone who owes £10,000 in credit cards and loans, and owns no property, and can no longer afford to pay the minimum monthly payments, possibly due to the loss of a job.
They would be considered insolvent.
If your debts (insert amount here), exceed what you own or have as assets (insert amount here), you are insolvent.
So technically a person who owes £20,000 in debt, and has a property valued at £150,000, and has £50,000 of equity in that property, meaning the mortgage balance is £100,000, is not insolvent.
Why you ask when they still owe £100,000 on the property, plus £20,000 in other debt??
Because if they were to sell the property, earn the value of the property at £150,000, pay off the mortgage balance of £100,000, they would still have £50,000, which after paying the £20,000 in debts, still have £30,000.
They are not insolvent.
Does this mean the person wants to sell their property to realise the equity of £50,000 to pay off the £20,000 they owe, possibly not. But the fact is they have the means to clear/pay their debts, so they are not insolvent.
Bankruptcy is a form of insolvency, in that you petition the courts to ask for help in getting out of debt as you can no longer do this yourself.
When you go bankrupt, you are insolvent, but insolvency itself does not mean you are bankrupt.
You can be insolvent and not go bankrupt.
So to answer the question, should I go bankrupt, or how do I know if I need to go bankrupt….you know.
Many people as mentioned, struggle for years with their debts and once the decision is made to go bankrupt, they are relieved; even with all that bankruptcy entails.
When you file for bankruptcy you are asking the courts for help in resolving your debts. The courts protect you from any future collection efforts and contact with your creditors.
However, for that help and protection you pay a price. That price is you give up control over your finances and any assets you may have, via an Official Receiver.
This is for a period of 12 months, then your bankruptcy is usually discharged, meaning it is over, and you no longer owe any of your debts.
We will look more at the process of bankruptcy, and what happens later on.