Pros and Cons of Bankruptcy

When it comes to filing for bankruptcy as a way to control your debt problems, there are more cons than pros in most cases. However, for some people it represents the best way of becoming debt free, and it should therefore be considered carefully. Weighing up the advantages and disadvantages can help you to decide whether it is the right decision for you.

Pros

Bankruptcy generally does not last as long as other debt management schemes. Whereas the IVA lasts for five years, and consolidation loans can last for many more years, the period of bankruptcy is limited to between one and three years in most cases, after which you be able to make a fresh start. However, it does have certain long-term implications, especially on your credit score and the stigma attached to it.

Bankruptcy offers the peace of mind that comes from a fresh start. Being in considerable debt can be stressful and it can often seem like it dominates your life, so being able to become debt free in a relatively short period of time can sometimes be a blessing that far outweighs the negative aspects of being declared bankrupt.

Cons

One of the major disadvantages of being declared bankrupt is that you lose control of your assets, including your home. You will also not have control of any assets you come into during your period of bankruptcy, including inheritance.

The stigma attached to bankruptcy is often one of the main reasons that people do not want to consider it as an option. The long-term implications can be quite difficult to deal with, and the thought of being publicly examined in court can put a lot of people off.

Being bankrupt prevents you from holding certain posts, meaning you will not be able to work as a lawyer, an accountant, an MP, a member of a local authority and a justice of the peace amongst others during your period of bankruptcy. If you have any ambitions to enter into such a profession, or are already in such a role, then the implications of being declared bankrupt can be a lot more severe.

Once declared bankrupt you will be unable to become involved in the formation or promotion of a limited company without first getting permission from the court.

You will have all of your bank accounts closed and will not be able to open any during your period of bankruptcy, which can be very frustrating and feel like you do not have any control.

You will face the prospect of having your position stated in the local press. This publicity and the need to declare your position for certain transactions, including the need to declare your status as a bankrupt if you want to acquire credit of any value greater than £250, can be a burden for many people.