What is bankruptcy?
Bankruptcy is a legal status for individuals who’re struggling to repay the bucks they owe. You can only be made bankrupt if you have debts over £5,000, and it’s really generally seen as a last resort – for example, you may consider a Debt Relief Order (DRO) or a person Voluntary Agreement (IVA) first.
How does bankruptcy work?
When you’re declared bankrupt, the value of your possessions is usually shared out among those you borrowed from money to. This could include your house, car, leisure equipment and jewellery – everything except the essentials. Based on your income, you’ll also be asked to make payments communicate debt for three years.
Sounds gloomy, but there’s a silver lining. Once you’re declared bankrupt, you won’t contain the pressure of dealing with creditors anymore. Lenders will also have to stop most types of court action against you. And, most relieving of all, you will usually be ‘discharged’ – this means that, freed from your debts – after twelve months. For read more on bankruptcy credit score
Bankruptcy is an extreme measure and can affect your life in several ways:
- You may lose valuable possessions. However, you can keep basic items essential for living and working (this might include your vehicle if you can’t do your job without it). Note that you may need to trade in these items for cheaper versions. While it’s upsetting to shed your belongings, keep in mind what you’re working towards: a life free of debt.
- Your bankruptcy will be public knowledge. It’ll appear in the London Gazette (or the Belfast Gazette if your bankruptcy is processed in Northern Ireland) and on the Insolvency Register. Worrying the particular neighbours will think? You probably don’t need to – unless there’s a higher level of public concern about your bankruptcy, it’s unlikely to be included in local or national newspapers.
- Your bank accounts may be closed. This may make day-to-day life difficult, since loan provider accounts are being used for many methods from receiving your salary to paying bills. But you may well be in a position to open a simple bank account. They are suitable for people with bad credit, and permit anyone to store and pay money without accessing overdraft facilities.
- The courts may take away your passport. This is called being impounded, but it’s unlikely to happen for you unless the courts believe you’ll travel abroad to market your possessions.
- It can be a stressful experience. From doing the paperwork to telling friends, bankruptcy can be considered a difficult process emotionally. That said, many people find a weight has been lifted from their shoulders, as individual bankruptcy lets them start a fresh leaf.
How long will bankruptcy affect my credit history?
- Your bankruptcy will appear on your credit report for six years, or until you’re discharged if this takes longer. Lenders check out your credit profile when you make an application for credit, so you’ll probably struggle to borrow money while bankrupt. What’s more, you must tell lenders about your individual bankruptcy when signing up to borrow over £500. Employers and landlords may ask to check out your credit information before employing you or permitting you to rent property.
• If you do find someone who’ll lend money to you, they might charge you a higher interest rate as they’ll see you as a high-risk customer. Even after your bankruptcy has been cleared from your profile, lenders can ask if you’ve ever been bankrupt (this is common when trying to get a mortgage).