Too poor for bankruptcy?

Has the threat of bankruptcy been exaggerated? Recent statistics by the Insolvency Service for the third quarter of 2011 show that the total number of bankruptcies has significantly declined compared to the same period last year. Many have interpreted these figures as a sign of hope and as an indication that the economic tide may be turning. In fact, quite the contrary could be be the case. With thousands of UK households knee-deep in debt, many are finding it impossible to pay the fees associated with a bankruptcy procedure. You may want to read that last sentence again – some are literally too poor to go bankrupt. This may sound absurd, but there are actually some very good reasons why there should be fees involved in a bankruptcy. Read on if you want to know more about them – and what this means for you.

There have traditionally been costs involved with bankruptcy procedures, because, contrary to common opinion and despite its social stigma, they have has long been associated with an all too easy way out of debt. After all, although it is a severe and harsh measure with a long-lasting impact on the bankrupt’s credit-worthiness, insolvency effectively wipes the slate clean again. Creditors rarely get back all of the money owed and frequently they will have to do with meagrely sums from auctioning off some of the borrower’s property. One of the original ideas behind the bankruptcy fee consisted in keeping people from carelessly applying for the procedure.

But that’s not the only reason. As you may know, bankruptcy procedures involve court hearings, deliberations and plenty of administrative work. There is even a person designated specifically to your case as a trustee. This person is better known as the official receiver and her or his task is to assess your situation, gauge your ability to pay back your debts and to then write a report. It is an important and time-consuming task and the bankruptcy fees are intended to cover the costs this entails. All in all, a bankruptcy will set you back £700, £175 of which goes to the court and £525 to the official receiver. There are all but no exceptions to this rule: Although, in some cases, the court costs of the bankruptcy procedure may be waived, the money to pay the official receiver must be paid in any case. This explains why so many are having second thoughts about applying for a bankruptcy and perhaps also why their number has remained fairly stable – or even slightly decreased – of lately.

This need not be a bad thing. After all, although bankruptcy may sometimes be the best solution in a difficult situation, it is never the only option at your disposal. Expert bankruptcy advice can get you back in the black again and open up a way out of the debt spiral for you. Even if a debt management plan cannot help you, there are several alternatives to entering bankruptcy procedures, including, for example, an IVA. So it is always advisable to ask for help.