Myths about Bankruptcy
- 03 Feb 2022
You may think you know about bankruptcy. However many of the things you have heard are myths and completely untrue.
- You do not lose control of your money
- Your belongings will not have to be sold
- A property is not automatically at risk
- Friends and family remain largely unaffected
- You can get credit after bankruptcy
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You do not Lose Control of your Money if you go Bankrupt
One of the biggest bankrupty myths is that the Official Receiver (OR) takes control over your income meaning you are left without enough to live on. This is simply not the case.
You are allowed to have a bank account into which your income can be paid as normal. You maintain control of this account and are left to manage it without interference.
The Official Receiver (OR) will agree a living expenses budget with you. Once this is done it is your responsibility to keep paying your household bills and other expenses.
If you have any disposable income you will normally have to pay this towards your debts for 3 years.
Your Belongings will not have to be sold to pay your Debt
You are not asked to sell all your belongings if you go bankrupt. In fact you will normally be able to keep all of your household possessions.
The only things at risk are items which individually have a second hand sale value of more than £500. However you are unlikely have anything like this. The second hand value of your laptop even if you recently bought it is likely to be less £500.
You do need to consider your car. You are allowed to keep one if you need it. However its second hand value must be no more than £1000. Where this is the case you may have to sell it and get a cheaper one.
You will normally be able to keep all your household belongings. These include your furniture and electrical goods including your laptop, Ipad, TV and mobile phone.
If you are a Homeowner your Property does not automatically have to be sold
If you are a homeowner you need to consider the affect of bankruptcy on your property very carefully. However you will not automatically have to sell.
What happens to your home will depend on how much equity there is in it. If there is little or no equity it is likely that you will be able to keep it. You will just have to buy back your interest from the OR. This will normally cost £1000.
Where there is significant equity this is a more significant problem. The OR is obliged to release your share normally within 3 years. If it cannot be done any other way the property may have to be sold.
If you are a homeowner speak to us before making a decision about bankruptcy. We can explain how your property will be affected.
Your Friends and Family remain largely unaffected by your Bankruptcy
After you go bankrupt no one else can be made to pay your debt. This is the case even if you are married or living with a partner. The only time a third party is liable is if an account is in joint names.
Your credit rating will become poor. However the credit rating of anyone living with you is not affected. They can continue taking on new credit in their name without a problem if they want to.
It is also unlikely that your friends and family will find out unless you choose to tell them. Other than in Northern Ireland your bankruptcy is not advertised in the newspaper and your employer is not told.
If you are planning to go bankrupt you are advised to discuss it with your partner. They can then support you through the process.
You can get Credit after Bankruptcy
The fact that you have gone bankrupt will be recorded on your credit file. The record remains for 6 years. As a result your ability to get most forms of credit during this time will be negatively affected.
After 6 years the record is automatically removed and your credit rating will dramatically improve. You will then be able to start borrowing again.
There are some things you can do to help your credit rating improve as soon as you are discharged from bankruptcy. One of these is to use a credit repair credit card.
It is possible to get a mortgage after bankruptcy. In certain circumstances you may be able to do so before the record has come off your credit file.
Hi, I’m thinking of applying for bankruptcy and have read somewhere it could affect my mobile phone contract and I’d have to close my bank account, is this true? I need my phone and I cannot have no bank account especially so I can pay my landlord rent and receive my benefits.
Hi Helena
If you are planning to go bankrupt you will need to consider your bank account. It is true that if you have a current account this will usually be closed by the bank whether you owe them money or not. However there is no need to panic. Most banks now offer a basic account that you can use while you are bankrupt. I recommend you open a new basic account before you go bankrupt so you know you will never be without an account.
You do not need to worry about your mobile phone contract. You can continue paying for this once you are bankrupt. The only thing to remember is once you are bankrupt your credit rating will become poor. You may therefore have difficulty applying for a new contract once your current one ends. If so you can just continue with the same provider “out of contract” or take a pay as you go option.