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Bankruptcy

Top 5 Bankruptcy Myths

Written by Alex Swindells on . Posted in Bankruptcy, Debt help.

Have you been struggling with debt and looking for a solution to help you out of your financial situation? You may have considered bankruptcy but are concerned that there’s a stigma attached to choosing this debt solution. Well, there are a few myths regarding bankruptcy that we’re going to uncover in this blog, which will, hopefully, help you see a clearer picture of what bankruptcy involves. 

Before we go into some of the bankruptcy myths, let’s summarise what bankruptcy is.

Bankruptcy is a legal status that allows you to obtain a clean slate if you’re in debt. You can file for your own bankruptcy regardless of how much your debt is; however, if your creditor decides to apply to make you bankrupt, then your debt needs to exceed £5,000.

It costs £680 to apply for bankruptcy. To pay for this as well as any other administrative fees some of your assets may be sold. Whatever money is left will be shared between your creditors to pay off your debt. 

If you manage to repay all of your creditors, then you may apply to have your bankruptcy cancelled. 

After twelve months, regardless of whether you’ve repaid all of your creditors or not, your bankruptcy should come to an end as long as you’ve stuck to the agreed terms. 

So, what are the bankruptcy myths?

1. Everyone will know that I filed for bankruptcy

Once you’ve been made bankrupt, then it does become public information. The details of your bankruptcy will be published on two government-owned websites: the Gazette and the Insolvency Register. 

However, unless your case is already high-profile, then it’s unlikely that the information will be published in your local papers. 

So, people can search for the details of your bankruptcy and this information will be available for them to view, but they’d already have to know about your bankruptcy to do this. 

2. You always lose your job if you file for bankruptcy

Are you wondering whether you should file for bankruptcy if you have a job? You may be concerned that your job could be affected. 

Well, the impact bankruptcy has on your job does depend on the type of job that you have and in which sector you work. 

For example, if you work in a bank or for the police, then your bankruptcy could affect your position. You might not necessarily lose your job, but the duties you usually perform may be changed. 

However, in most cases, you are not legally obliged to share your bankruptcy with your employer. Ensure that you read your contract thoroughly to understand the terms set out by your employer. If you’re still unsure after checking your contract, then speak with your employer. 

Your employer must treat you fairly. If they decide to dismiss you, then seek external advice to ensure that your employer has treated you fairly and to find out whether you can challenge the dismissal. 

Empty boardroom

3. You will lose all of your assets 

A lot of people tend to think that once a person goes bankrupt they will lose everything. This isn’t true.

If you go bankrupt, then certain items will be excluded from the assets that are sold to pay off your debt. 

For example, any items that you need to be able to work, such as books, equipment, or even a vehicle, will not be taken from you. These items are known as ‘tools of the trade’. 

Additionally, you will be able to keep any items that are necessary for you to function normally, such as clothes, furniture, kitchen appliances, and so on.

Pound notes

4. I’ll never be able to get credit again 

You may have limited access to credit options for up to ten years after your bankruptcy has ended, or for as long as the bankruptcy stays on your credit record, which is usually for six years.

However, if you actively try to manage your credit report, then you can work at increasing your credit score. 

For example, making all of your payments on time, taking out small loans and managing these well, and making sure you’re on the electoral register are all factors that can help to increase your credit score. 

Additionally, you can do all of the above even while the bankruptcy is on your credit report. 

5. Bankruptcy gets rid of every type of debt 

Most types of debt are covered by Bankruptcy and you will be released from them when you are discharged. These include debts such as unsecured loans, council tax arrears, utility debt, However there are some debts that are not included within a bankruptcy that you are still responsible for paying. These include:

  • Debts gained by fraud
  • Money owed under family proceedings (maintenance and lump sum settlements)
  • Damages payable to anyone for personal injuries
  • Student loans
  • Court fines
  • Debts created after the bankruptcy order

We hope that this blog has helped you to decide whether bankruptcy is the right financial solution for you. 

But if you wish to know more about bankruptcy, then Swift Debt Help can offer some further bankruptcy advice.

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Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.

Woman at computer on tablet

5 Things To Know Before Declaring Bankruptcy

Written by Alex Swindells on . Posted in Bankruptcy, Debt help.

Declaring bankruptcy may be your only option if you have mounting debts that you are unable to pay. However, bankruptcy is not something you should rush into because it has long term effects on your life and your finances. Here are five things you should know before declaring bankruptcy.

1. Bankruptcy can have an impact on your assets

Hand drawing of man in shirt and tie losing his assets to bankruptcy

When you declare bankruptcy, you are required to make a reasonable effort to pay back your debts, and this often includes using your assets. Things that are considered essentials, like clothes, furniture, and cooking appliances are protected. However, other belongings will be passed on to the Official Receiver, the person that deals with your bankruptcy. These will then be sold to raise money to pay your debts. 

Items that you are allowed to keep include:

  • Clothes 
  • Furniture
  • Household appliances
  • Tools required for your job
  • A car that you need for work or other basic needs (if you are disabled, for example)

There are some exemptions and if certain assets on this list are valued very highly, they can still be sold. For example, you may be forced to sell your car and you will be given £1,250 to buy a cheaper replacement, with the rest of the money being paid towards your debts.

Jointly owned assets can also be affected. If they are sold, the money will be split between the Official Receiver and the person that has a shared interest in the asset.

Depending on your situation, you may have to move home when you declare bankruptcy. If you rent your home, you will not be affected and your landlord will not be informed. But if you own your home, you may be required to sell it to raise money to pay your debts. In some cases, you can prevent this. 

The official receiver has three years to decide what to do with your home. If they have not taken steps to sell it in that time, your interest in it is restored and you can keep your home.

It is important that you consider how your assets will be impacted before you declare bankruptcy.

2. If you own a business, bankruptcy will have an impact

Drawing of chart a declining chart with an arrow pointing downwards

When you declare bankruptcy, there are specific rules related to the running of a business. For the 12-month period of your bankruptcy, you are forbidden from acting as the director of a limited company or managing it in any way without the permission of the court. The company itself can continue to operate but you will need to appoint somebody else to manage it for you. 

If you are self-employed and registered as a sole trader, the rules are different. You will be able to continue operating as normal, but if you run a business under a name that’s different to the one in which you were made bankrupt, you must tell everyone you do business with the name under which you were made bankrupt. 

Bankruptcy will also be recorded on your credit reports for six years. This can seriously impact your ability to get credit in the future, which can be a big problem for businesses.

Business owners might want to explore other options like an Individual Voluntary Arrangement to avoid the restrictions on their ability to run their company.

3. Your bank accounts could be frozen

Young woman feeling displeased about debt on her credit card while checking bank account over laptop at home.

The Official Receiver takes control of all of your assets, including your bank account, when you declare bankruptcy. This often means that your bank accounts are frozen and you cannot withdraw any money. If you have money in your account that is required to meet your essential living costs, the Official Receiver will arrange with the bank to release those funds to you. The bank will then decide if you can continue using your account.

4. Bankruptcy doesn’t cover all of your debts

Pound coins stacked on top of each other on a table

Writing off debt is one of the major benefits of bankruptcy but not all debts are covered. You must understand exactly which debts are not covered because you will still be liable for them, even if you file for bankruptcy. Debts not covered include: 

  • Secured debts
  • Child maintenance debts
  • Student loans
  • Court fines 

5. Take the right steps before declaring bankruptcy

Person wearing running shoes taking steps up the stairs

There are some key steps you must take when declaring bankruptcy to minimise the impact.

Ensure bankruptcy is the right debt solution for you

Bankruptcy is not always the right debt management solution. Look into options such as Debt Management Plans (DMP), Debt Relief Orders (DRO) or Individual Voluntary Arrangements (IVA) before declaring bankruptcy. You may be able to limit the impact on your credit reports and avoid financial restrictions by finding a different debt solution.

Apply for bankruptcy

The next step is to fill out the necessary paperwork and pay the fee of £680. This can be paid in instalments, if necessary, with a minimum payment of £5. However a bankruptcy order will not be granted until the fee is paid. You will find the forms on the gov.uk website.

Set a budget from your living costs

As part of your bankruptcy application you will need to write a budget based on your essential expenses. When you declare bankruptcy, you will not be permitted to spend anything else as all additional money will go towards your debts.

Cooperate with the official receiver

The Official Receiver is the person that manages your bankruptcy. They will contact you within two weeks of your application to discuss your bankruptcy. They also take control of your assets. You need to work with them while they distribute your money and assets to pay off a portion of your debts.

Pay back your debts and discharge from bankruptcy

Now that everything is in place, you may need to continue paying towards your debts for up to 3 years – this is dependent upon your circumstances and your disposable income after meeting your essential outgoings. As long as you cooperate with the Official Receiver and meet all of your obligations, you should be discharged from bankruptcy after 12 months. 

Declaring bankruptcy may be the solution to your debt problems but it is not always the only option. If you need advice about managing your debts, fill out the contact form to get in touch with Swift Debt Help today. We can talk through your different options and help you regain your financial freedom.

Request a Debt Assessment

May not be suitable in all circumstances, Fees may apply, your credit rating may be affected.

Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.