It is extremely sad to hear the news that Katie Price has been declared bankrupt.
Although the stigma of bankruptcy may have disappeared, it is still an extremely sobering event when an individual fails financially and is declared bankrupt by a court. In an increasingly materialistic world, bankruptcy is an ever-common event in society.
An individual can be declared bankrupt by a creditor (owed in excess of £750) or by the individual himself/herself through the court. All the individual needs to show is that he/she is insolvent, usually shown by an inability to pay his/her debts as they fall due (often where the creditor is HMRC or a debt purchaser company).
Once bankrupt, the bankrupt’s pre-bankruptcy debts are effectively “ring-fenced” and (usually partially) paid from the sale of the bankrupt’s assets; however, to do this, ownership of the bankrupt’s assets transfer from the bankrupt to the Official Receiver or a Trustee in Bankruptcy. The assets that the bankrupt loses often includes the bankrupt’s biggest asset, their interest in their home, which may be worth many hundreds of thousands of pounds – often worth in excess of the bankruptcy debts.
The assets which are not part of the bankruptcy estate and consequently not transferred to the Official Receiver or a Trustee in Bankruptcy are the bankrupt’s (1) tools of the trade, (2) requirements to live, (3) assets held in trust and (4) usually pensions.
Bankruptcy may give short-term relief in so far as bankruptcy debts are effectively written off and creditors stop ringing and chasing their debts. Also, the bankruptcy will usually only last one year. However, it is vital to give the matter serious thought, extremely difficult if you are under extreme stress with financial worries and not sleeping. Consider, what will you lose by declaring yourself bankrupt? Do you want to lose your home? Do you want the Official Receiver or a Trustee in Bankruptcy to review and analyse all your financial dealings going back five years?
There are alternatives to bankruptcy, such as an individual voluntary arrangement or a debt management plan, through which you can still deal with your debts but without the dire potential consequences of bankruptcy.