How much do I need to owe before declaring bankruptcy?

010s – BAS

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They say moving house is one of the most stressful things we can do in life. And whilst this is true, the pressures of relocation are nothing when faced with the threat of repossession and court action resulting from debts that have spiralled out of control.

It’s a situation that can arise easier than people often think. In the current financial climate the risk is even greater than usual, as savings interest rates remain at an all time low, credit card APRs continue to climb, and utility prices prepare to skyrocket, again. Suffice to say, overspending on just a couple of months can leave you more than out of pocket and struggling to find spending money.

Though far from the only option, bankruptcy is the most recognisable process by which people can escape large amounts of debt. Not for no reason, this is because of the huge impact it has on the individual concerned, and the severity of proceedings. As such considering all the options available is essential in order to avoid making rash decisions that can lead to major repercussions in the long run.

 Nevertheless, bankruptcy remains an essential tool in the management of bad debt. In order to make an application against an individual, or for an individual to file for bankruptcy, the situation needs to be serious to the point where there is little to no money available with which to repay balances. As a rule of thumb, £750 or more must be owed out to one or more creditors before any other factors are taken into consideration.

More evidence will be needed, however, in order to prove there is a sufficient requirement for bankruptcy. Taking into account possessions and assets, including but not exclusively any vehicles, property, and savings, you will need to owe out more than could possibly be repaid if all the aforementioned were sold.

Only if this is the situation can an application be successfully made to court, which will in turn result in proceedings to distribute your estate and arrange for a payment plan, in line with earnings, to be set up for the foreseeable future. Discharge usually taking place after 12 months, but financial restrictions on access to credit remain in place for varying amounts of time, decided on a case by case basis.

A key point to bear in mind is that even if you owe more than the required amount to qualify for bankruptcy this may not be a necessary course of action. Debt Relief Orders, Individual Voluntary Agreements, and Debt Management Plans are all examples of alternatives that could be more suitable, with less serious consequences. That said, it’s important to note that in all instances credit ratings will be affected, although most would agree that’s a far less worrying prospect than mounting piles of urgent mail, constant phone calls to angry creditors, and an ever-increasing month-end deficit.