What You Aren’t Told About Bankruptcy
All you need to know about bankruptcy as a debt management option
Debt can be a traumatising time, and even the act of considering bankruptcy can be difficult. Nobody wants to admit that they’re in over their head, dealing with a staggering amount of debt that they can’t realistically repay. The first step to dealing with your debt issues and moving on with life means researching your debt management solutions with bankruptcy being the most widely known.
However, bankruptcy should certainly be your last possible resort. Remember that there are other avenues open to you when it comes to debt management. IVAs, for example, offer far fewer restrictions. There are professionals out there with state-of-the-art insolvency software that can help you decide what debt management solution works best for your needs. If you decide to stick with bankruptcy, you should know the intricate ins and outs of what is involved and how you will be affected.
Those who declare bankruptcy are subject to harsh restrictions
Once you go bankrupt, there will be certain restrictions placed upon you that you are required to follow until you are discharged from bankruptcy (usually after 12 months). These restrictions include the following:
- You won’t be able to create, manage or promote a company in the future without express permission given by a court of law
- You won’t be able to act as a company director without court permission
- You won’t be able to manage a business without letting your fellow managers and higher-ups know about your bankruptcy
- You won’t be able to borrow more than £500 without informing the lender of your bankruptcy
- You won’t be able to work as an Insolvency Practitioner
These bankruptcy restrictions can, on occasion, be extended if you fail to carry out your duties under the bankruptcy proceedings, or if you have acted dishonestly or carelessly. If your retractions are being extended, the Official Receiver will let you know.
You will be asked to sign over most of your assets and money
In an attempt to pay your creditors back as completely as possible, all of your assets (except for those necessary for you to continue living comfortably) will be liquidated. During your bankruptcy, if you receive any money or an inheritance, you will be asked to pay it to the Official Receiver. You will also have to keep track of all your incomings and outgoings as six-monthly statements will have to be made to see whether or not more money could be given to the Official Receiver to pay off your debts.
Bankruptcies aren’t entirely private in nature
Once you have been made bankrupt, the Official Receiver is duty-bound to tell certain organisations about your situation. All of your creditors will be informed, and your bankruptcy will be mentioned in the London Gazette, a trade paper for creditors. Your bankruptcy will be a matter of public record, so anyone searching specifically for you and your bankruptcy history will be able to find pertinent information. Your Official Receiver will also have to tell your building society or bank about your situation, meaning that your accounts may be frozen. Your utility suppliers will also be informed, at which point they will treat you as a new customer; you will likely have to provide a guarantor or utilise a pre-payment meter.
How bankruptcy affects your credit and personal finance
While bankrupt, it will be very difficult for you to secure any kind of loan at all. You will likely be able to keep your bank account, but it will be a very basic account and you will be unlikely to be able to stay with your bank if you have debts or an overdraft with them. Your insurance arrangements may also be affected, as most companies require that you notify them should you, or anyone linked to the policy, go bankrupt.
Like any other financial decision, a bankruptcy will remain on your credit report for a maximum of six years, providing it has been discharged. After this point, it is wise to check your credit report to ensure that it has been updated. This is so that you are able to begin rebuilding your credit rating. Creditors will no longer be able to see that you have been declared bankrupt, but be warned that — when applying for a loan — some lenders still ask and your bankruptcy might affect their decision.
Not all debts can be included in a bankruptcy
Though most debts will be covered by your bankruptcy, not all types are written off. This means that those you owe money to can still take legal action to regain their money. These debts need to be considered before your bankruptcy is declared.
Debts that can’t be included in a bankruptcy include:
- Court-ordered payments
- Magistrates Court fines
- Child support payments and maintenance payments
- Student loans
- Secured loans
- Tax credits overpayments
To find out more about bankruptcy and to see what other alternatives are open to you and best suited to your situation, get in touch with an insolvency professional.