So you’ve decided that bankruptcy is the right way to deal with your money problems and the wheels of the bankruptcy process are in motion.
But what can you expect to happen after your Bankruptcy Order has been made and, later on down the line, when you’ve been discharged?
This article from bankruptcy advice specialists, Bankruptcy Clinic, sets out the key things you’ll want to know.
During your bankruptcy
If you’re already in the process of declaring yourself bankrupt, your bankruptcy adviser should already have discussed with you in detail what will happen. Here’s a recap.
• The Official Receiver or Trustee
Once the court has made your Bankruptcy Order, the Official Receiver (OR) or Trustee appointed to administer your bankruptcy will take charge of your estate. You’ll need to make a complete and accurate disclosure to them of your financial circumstances, including income, outgoings and assets, and full details of all your debts.
• Your property and other assets
If you’re a homeowner, the OR will decide if the property should be sold to help repay your debts. They’ll also look at any other valuable assets you own, such as an expensive car, antiques or jewellery. However, if you jointly own your property or assets with another person, only your share of their value will be considered.
You may be able to keep living in your home if it’s possible for a partner, friend or relative to buy out your share in it. Or, if you have dependent children or other vulnerable relatives living with you, the OR may ask you to release equity or re-mortgage your home instead of selling it.
• Your income
If you have any spare income after your essential outgoings, you may have to use this to repay your creditors. At the OR’s recommendation, the court may make either an Income Payments Order or an Income Payments Agreement against you that could last up to three years.
• Your personal finances
You’ll need to hand over your bank cards, cheque books and credit cards to the OR, so make sure you hold on to enough cash to tide you over. Your bank accounts will be frozen and, whilst your bank might let you start using them again in the future, it may be best to open a new account with a different provider.
Of course, you’ll need to tell them about your bankruptcy and in most cases, you’ll only be allowed to open a very simple, cash-based account. However, this will help you get used to living within your financial means, which will stand you in good stead with the OR.
• Bankruptcy restrictions
Bankruptcy places a number of important restrictions on you, which you’re legally obliged to comply with. For example, you can’t take any part in setting up or running a limited company, or act as a company director. You can’t apply for credit of more than £500 without telling the lender that you’re an undischarged bankrupt. And you can’t practice certain professions, such as most legal roles, so you may need to change your career.
Note that details of your bankruptcy will be published in the newspapers and the Insolvency Register, so you can’t hide it from interested parties. So it’s best to seek professional advice on any restrictions that might apply to you, so there are no surprises once your Bankruptcy Order is in place.
• Other implications
There are a number of other important implications of bankruptcy that you’ll need to be aware of, depending on your individual circumstances. These include potential effects on your pension, if your current scheme isn’t HMRC-approved, and your immigration status if you’re not currently a UK citizen.
Your bankruptcy adviser will talk you through any issues that apply to you.
After your discharge
In most cases, your bankruptcy will be discharged 12 months from the date that your Bankruptcy Order was made. If you’re subject to an Income Payments Agreement or Order (see above), your bankruptcy may continue until this has come to an end. In either case, here’s what will happen after you’ve been discharged.
• All remaining debts listed within the bankruptcy will be written off This is why bankruptcy can be a good option for people with few or no assets, and/or low income. You could walk away from most or all of your debts just a year after going bankrupt. It’s your chance to make a fresh financial start and change your life for the better – so make sure you grasp it with both hands.
• Your credit rating will still be affected
Your credit rating probably wasn’t great when you declared yourself bankrupt, so this may be nothing new. However, bear in mind that your bankruptcy will stay on your credit file for at least six years from the date of your Bankruptcy Order.
During this time, you’ll find it harder and more expensive than usual to get credit. And even when the six years are up, some lenders will still want to know if you’ve ever been bankrupt, and you could still struggle to get credit or a mortgage at the standard rates.
However, you can take steps to improve the situation as far as possible by applying for limited credit and using it sensibly. For example, try getting a credit card from a company that specialises in lending to people with poor credit histories. Use the card sensibly – staying within your limit and paying all your bills on time.
In time, see if you can get other forms of credit, such as a mobile phone contract. You may need to pay a security deposit, but you’ll be rebuilding a positive credit history that will help lenders view your situation more favourably in the future
If you’d like more information on the effect bankruptcy could have on your life, just ask Bankruptcy Clinic. Our friendly, qualified debt advisers are here to answer your questions and help you make the right decisions about managing your debts and regaining control of your finances.