Is Bankruptcy as bad as you think
- 23 Nov 2021
You may believe Bankruptcy is a last resort debt solution which should be avoided if at all possible. However this is not correct. In many cases it is not be as bad as you think.
Included in this article:
- Your home is not necessarily at risk
- You can have a bank account
- You keep your household possessions and pension
- Very few people will find out
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Your home is not necessarily at risk if you go Bankrupt
If you are a homeowner you may think that bankruptcy means you will be automatically forced to sell your property. This is not the case. However it is important to understand the implications.
Given there is little or no equity the risk to your home is actually very low. You will be able to keep it and protect future increases in equity by buying back your interest from the Official Receiver. This will normally cost £1000.
Where you have significant equity this will have to be released for the benefit of your creditors. However selling the property to achieve this would be a last resort after all other options for raising the funds have been exhausted.
If you are renting your landlord will not be told as long as they are not one of your creditors. As such there should be no risk to your home.
You can have a Bank Account while you are Bankrupt
You may think you will lose control of your money and will not be able to have a bank account if you go bankrupt. This is absolutely not true. You are allowed to continue managing your own money with your own bank account.
That said most banks will have a policy that they will only allow you to maintain a basic account. If you are using a current account it is likely that you will need to close this and open a basic account instead.
Your wages and other income can be paid into this account as normal. You can also set up standing orders and direct debits for all your ongoing utility bills and essential payments.
If you have any surplus income you will be asked to pay monthly towards your debts. This is set up as a standing order from your account. It is not taken directly from your wages.
You keep your household possessions and pension
Bankruptcy does not mean that you will be forced to sell your household belongings. You will be able to keep all of your possessions unless you have an individual item which is particularly valuable.
In addition any pension funds in your name are protected. They can’t be taken by the Official Receiver. You can continue to make payments into your pension as long as the amounts are reasonable.
You will be allowed to keep your car (given you need for work or family commitments) as long as it is not worth more than £1000. If it is on finance you should be able to keep it as long as the finance company agrees.
If you are over 55 you may have access to your pension fund. If so you can’t go bankrupt if the value of your fund is greater than the unsecured debt you owe.
Very Few People will find out you are Bankrupt
You may be surprised to learn that Bankruptcy is not advertised in your local newspaper (unless you live in Northern Ireland). This practice was stopped back in April 2009.
As such it is actually a relatively private debt solution. The only people who will be told are your creditors and your bank. Your employer will not find out unless you chose to tell them or they happen to run a credit check against you.
Your name, occupation and last known address are recorded in the Insolvency Register. This is publicly accessible via the internet. However you details are only visible if someone undertakes a specific search on your name. Your address can be withheld if you have a specific need.
After you are discharged your details are removed from the Insolvency Register within 3 months. However a permanent record of your bankruptcy remains in the London Gazette.
I have personal debt due to unforeseen circumstances and have been advised to go bankrupt. However, I want to register a ltd company. Can I do this?
Hi Sammy
You can’t be registered or act as a company director if you are bankrupt. In most circumstances bankruptcy lasts 12 months so the restriction lasts for this period of time only. Once you are discharged you can then become a director if you wish.
If you need to trade through a limited company you could register one before you go bankrupt. You can then resign as a director and appoint someone else in your place. You can work for the company as an employee if you wish. Alternatively you can work on a self employed basis while you are bankrupt. That would be no problem at all.