Does bankruptcy deserve to be stigmatised?
By Mr Bankruptcy
20th June 2024
When Charles Dickens’ father, John, was thrown into the Marshalsea debtors’ prison in 1824, twelve-year-old Charles was put to work at a blacking factory to provide for them. The shame and hardship of that time marked his writing as an adult.
One of the greatest business innovations introduced by Victorians was the concept of bankruptcy – being given a fresh start, with reasonable conditions, after falling into unserviceable debt. It meant people could take a chance on a business venture without the fear that failure would destroy them and their families.
But the word bankruptcy seems to have a stigma of its own, and bankrupts are still treated with suspicion. Do they deserve this reputation?
What is bankruptcy?
Bankruptcy is a simple legal process you can apply for if you can’t pay back your debts. Bankruptcy leads to a fair share-out of your assets among creditors, under the guidance of court appointed professionals.
Some of your assets are protected by law and you are given time to find accommodation if you have to sell your house to pay back debts.
The process stops a situation from getting any worse and puts a line under existing debts through a legal process that’s less threatening than being pursued by a crowd of angry creditors. There are several advantages to bankruptcy:
- All existing unsecured debts are written off
- Personal Bankruptcy only lasts for 12 months
- Creditors stop hassling you for their money
- You can engage a professional advisor throughout
- It’s better than prison!
But I’m not going to pretend that filing for bankruptcy is an easy opt-out; there is a downside:
- £680 to pay for a bankruptcy application to the Insolvency Service
- Your personal bankruptcy is advertised in the press
- A company director can’t hold their position any more
- If you borrow £500 or more, you must tell the lender you’re personally bankrupt
- You can’t hold certain positions in the community
- Your assets are in the hands of the Official Receiver
- Your credit rating is negatively affected.
So, not all good news, but these points don’t really explain the stigma around bankruptcy.
Fear of failure
In the UK we have a different relationship with failure to the more entrepreneurial Americans. They are proud to have a backstory of failure before bouncing back to success, but for British people shame is a more common emotion, and filing for bankruptcy sounds like signalling your business shortcomings.
It’s difficult to admit failure to family or business partners, but dealing with it on your own can lead to overwhelming stress and mental health issues. I know because I’ve seen it with clients, and I’ve experienced it myself.
But many successful businesses have filed for bankruptcy, quite often because entrepreneurs understand how it works and are encouraged to chance their arm. Sometimes it works, sometimes not. It may even be a strategic decision to reorganize or re-allocate finances which help you win next time.
It’s also important to remember that success in life is about more than career status, keeping up with the Jones’ or the size of your bank balance. This mentality can get people into debt in the first place. Success in life can be measured in charitable works, respect in your community, a happy family.
These successes depend on how you treat people, not your wealth, and bankruptcy gives you a fresh start to show your true mettle and rebuild your life.
The embarrassment
Although bankruptcy proceedings are technically public, no-one you know is likely to be killing time sat at the back of a county court, or browsing through The Gazette.
You don’t have to tell everyone you know about your situation and your bankruptcy consultant owes you a duty of confidentiality.
Can you be trusted?
Some clients fear they will be seen as untrustworthy, dishonest or irresponsible, but the truth is that most of the people I advise have filed for bankruptcy because of reasons beyond their control – a downturn in the economy, redundancy, divorce or illness.
You aren’t alone when you file bankruptcy.
Bringing your debt problem into the open helps your family or business partners to understand your problem and that you are willing to do something about it.
If you are holding back from filing bankruptcy out of fear, guilt, or shame, you aren’t alone, and there’s plenty of professional help out there, in the private and charity sectors. Bankruptcy is one of the most valuable legal protections we are afforded. It’s not the end, but a new beginning.
James Rosa Associates, personal bankruptcy consultancy services
If you’re thinking of filing for bankruptcy as an individual or company director, we can help in a non-judgemental and supportive way. Get in touch with us and we’ll discuss your current situation and whether personal bankruptcy is the appropriate solution for you.
We dedicate a client director to your case through to the end, operating on your behalf every step of the way. We will look at how to protect any third-party interest (e.g. property shared with your spouse), produce all the legal documentation needed and physically attend court, as well as meeting with the Insolvency Service.
We also offer a full range of professional services to individuals and business owners/ directors who face unmanageable debt and are looking for a solution, or anyone who is involved in a civil or commercial dispute, including:
We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.
Find out if you qualify for a free consultation
If you want to deal with an unmanageable debt, or bring a dispute to a swift and cost-effective resolution, then contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk and find out whether you qualify for our free consultation service.
Is it better to have savings or pay off your debts?
By Mr Bankruptcy
3rd June 2024
Having some emergency money put aside for a rainy day sounds like prudent financial planning against the unexpected – whether that’s a big repair bill or keeping your head above water should you become unemployed.
But if you also have outstanding debts, does it still make sense to keep some savings in the bank as well? The peace of mind that you enjoy could be costing you money.
Safety first
Having a safety cushion against whatever life throws at you can be seen as a luxury during a cost-of-living crisis. But the received advice is that the minimum recommended amount you should have in easy-access savings is enough to cover for three to six months-worth of essential outgoings (bills, mortgage, food, fuel etc) until you can find another income.
It’s good to feel in control of your finances, so it’s not surprising that a survey by HSBC UK found that the average emergency fund in the UK stands at £7000. However, it also revealed that young adults have, on average, less than £1000 set aside for emergencies, showing how difficult it can be to plan for the worst.
The cost of having a financial safety net
Even though interest rates for savings accounts are higher at the moment than they’ve been for a while, the general rule is that bank interest rates for borrowers are usually higher than for savers. That difference is how banks make their money from your deposit.
This means that the interest you are probably paying on your debt is more than you will be earning from your savings account.
TV money expert Martin Lewis is a big advocate of paying down debts. He uses a simple example to show how someone with a £1000 credit card debt and £1000 in savings could save £180 a year by using their savings to clear the loan.
And his example doesn’t even take into account the effect of inflation on your savings or the fact that you may also be paying tax on the interest you earn.
Paying off your debt
In my blog I’ve written a number of posts on the best ways to pay off debts and reduce interest payments.
But the general rule of thumb is to pay off the most expensive debts first, usually in the order of: overdrafts, credit cards, store cards, then personal loans.
But what about future emergencies?
What happens, though, if you use your savings to clear a debt and then you suddenly need £1000 in a hurry?
That’s when you can use that cleared credit card as a source of emergency money to borrow when you need it. If the worst does happens, you’ll be no worse off than before, but hopefully you’ll have had some time to reap the benefit from reducing your overall costs.
And, of course, once you’ve paid off your debt there’s nothing to stop you from putting a little bit aside each month to rebuild that nest egg. If you like the idea of being in control of your finances, then you’re probably motivated to be a regular saver anyway.
You can also make your emergency fund grow and work for you by looking for an easy access bank account that offers the best interest rate.
You can get some good deals from online-only but make sure the financial institution you open an account with comes under the UK Government’s Financial Services Compensation Scheme., which will reimburse you up to the tune of £85,000 if fails.
Is it always a good idea to pay off your debt first?
Everyone has their own individual circumstances, and you may have a very good reason not to pay off a debt immediately:
- You might have a competitive fixed interest rate or a ‘0% interest for the first 12 months’ type of deal.
- You may want to build up a credit history if you need to take out a loan in the future.
- There may be a penalty for early debt repayment (mortgage lenders impose an annual maximum on the amount you can overpay).
- Student loan works differently and it may not benefit you to pay it off early and miss out on a write-off at the end of its term.
- A lump sum payment on a mortgage could save you £10,000s over its lifetime and cut the mortgage period, but you can’t retrieve that money and you may have more immediate plans for it.
However, talking to a qualified debt advisor can help you understand the best options available to you or your business, so that you can start taking the necessary steps to navigate your way out of debt. And sharing your concerns with someone else is much better for your mental wellbeing.
James Rosa Associates
James Rosa Associates is a firm of debt advisors and debt adjustors. With a supportive, non-judgemental and friendly approach, we offer a full range of advice and professional services to individuals and business owners/directors who face unmanageable debt and are looking for a solution, or to people involved in a civil or commercial dispute. As well as advice, our range of services include:
We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.
Find out if you qualify for a free consultation
If you want to deal with an unmanageable debt, or bring a dispute to a swift and cost-effective resolution, then contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out whether you qualify for our free consultation service.