There are many disadvantages, including:
- The debtor will almost certainly lose any assets of value that can be sold off unless they are exempt (although even then the debtor may have to accept a replacement of lower value)
- If there is equity in the family home (i.e., it is worth more than the mortgage(s)) the trustee will want to release the debtor’s share of the equity. This may lead to the home being sold (although this cannot happen if the value of the debtor’s share does not exceed £1,000)
- If the debtor owns a business and employs people, or the business has a value, the employees may have to be dismissed and the business sold;
- If the debtor has a mortgage or rent arrears the home will still he at risk; bankruptcy does not prevent a secured lender from taking possession proceedings; a landlord may be able to enforce a suspended possession order it the arrears are not paid or find some ground other than rent arrears to start possession proceedings — eg, persistent delay in paying rent.
- The debtor cannot obtain credit of more than £500 without disclosing her/his status where s/he is an undischarged bankrupt or subject to a BRO or bankruptcy restriction undertaking (BRU) and s/he may find it more difficult to open a hank account.
- The process is very expensive; a debtor who wishes to pay off the debts in order to preserve an asset — eg, the family home will have to pay the costs as well;
- The debtor must allow her/his financial affairs to be scrutinised by officials who may take criminal action or apply for a BRO/BRU if irregularities are found.
- The debtor may be barred from certain public offices or may be unable to practice certain professions eg, accountant, solicitor;
- The debtor’s credit rating will continue to be adversely affected after discharge and this will probably make running a business or buying a home in future very difficult;
- The debtor may feel judged and humiliated; there is still a stigma attached to bankruptcy and this will be reinforced in cases where a BRO/BRU is made;
- While undischarged or subject to a BRO, the debtor cannot be a company director (without the leave of the court) and cannot trade under any name other than the one used at the date of the bankruptcy order without disclosing the name s/he went bankrupt under to all persons with whom s/he does business;
- The names of people who are made bankrupt are published in the London Gazette and also in the local press; BROs/BRUs may also attract local publicity; friends and neighbours may find out about the debtor’s financial difficulties and, where a BRO is made, that s/he has been found to have acted irresponsibly in relation to her/his financial affairs;
- Not all debts will be written off at the end of bankruptcy — eg, fines, maintenance/child support.
- Secured creditors are not affected by bankruptcy and can still enforce their security;
Joint debts are not written off in the sense that creditors can still pursue the non-bankrupt co debtor If she/he is the debtor’s partner, the family will still be in financial difficulties.
There are a number of advantages to bankruptcy including:
- It can remove the uncertainty and anxiety caused by negotiating with a large number of creditors simultaneously;
- There can be a sense of relief for the debtor;
- The client usually pays less; if any payments are made they will take the form of one payment to the trustee rather than individual payments to creditors;
- It can be a fresh start: the process is intended to rehabilitate the debtor;
- Creditors have to accept the situation and contact with the debtor will slop; most creditors will be unable to take further action against the debtor.
- The process is certain;
- After discharge most debts are written off and can no longer be pursued by creditors.
