Debts included in Bankruptcy
Most unsecured debts are included in Bankruptcy. However secured debts such as a mortgage or car finance cannot be added.
- Which debts are included in Bankruptcy?
- Which cannot be included?
- What if you have Joint Debts or Guarantor Loans?
- What if you cannot remember all of your creditors?
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Which debts are Included in Bankruptcy?
When you go bankrupt almost all of your unsecured debts are included. Any bank loans, credit cards, store cards, overdrafts and Payday loans you may have are added. On top of these other debts are also written off:
Money owed to HMRC is added to your bankruptcy. Income tax arrears and VAT from a self employed business are all included and written off with your other debts.
CCJ (County Court Judgment) Debt
If any of your creditors have already issued a CCJ against you it does not matter. This debt is also included. Even an attachement of earnings already in place is overturned. The deductions from your wages will stop.
Houseing benefits & Tax Credits arrears are written off if you go bankrupt as long as they are not as a result of fraudulent claims. However any ongoing benefits you receive may continue to be reduced until you are discharged.
Generally speaking all the unsecured debts in your name must be included if you go bankrupt. You cannot choose to leave any out.
Which Debts Cannot be Included in Bankruptcy?
There are a number of debts that cannot be included in bankruptcy. The most common of these are secured debts. These are things like a mortgage secured against a property or finance secured against a vehicle.
If they were included you would have to stop making the agreed monthly payments. As a result you would risk the things they are secured against being repossessed.
In addition there are some unsecured debts that can never be written off by bankruptcy. These include CSA (Child Support Agency) Arrears; Student Loan Company Debt and Court fines.
Mortgage and Car Finance shortfalls can be included in bankruptcy. This debt has become unsecured as the property it was secured against has now been repossessed.
What if you have Joint Debts or Guarantor Loans?
Bankruptcy is an individual debt solution. The debts in your name are included but debts in your partner or spouses name are not. This can cause a problem if you have joint debts.
As long as they are unsecured any joint debts you have must be included in your bankruptcy. However the other party remains liable for 100% of the outstanding balance. If they cannot afford to maintain the payments themselves they may then have to implement their own debt solution.
Most guarantor loans are unsecured debts. As such these must also be included in your bankruptcy. However the loan company can then ask the guarantor for payment. Legal action can be taken to enforce this.
Where you have joint debts or guarantor loans it is important to consider the impact on the other named person or guarantor before going bankrupt.
What if you cannot remember all of your creditors?
One if the advantages of bankruptcy is that you do not need to list all your creditors in your application. Under section 382 of the Insolvency Act 1986 any unsecured debts you are liable for are automatically included whether listed or not.
If you forget to include one of your creditors or you are unsure how much you owe them it does not matter. They are still legally included and you are protected from them. If they pop up later you simply inform the Official Receiver (OR) who will deal with them for you.
Debts that you may become liable for as of the date you go bankrupt are also included. The most common example of this is a mortgage shorfall which has yet to be calculated.
It is sensible to try and remember as many of your debts as possible and include them on your application. The OR can then inform them you are bankrupt.
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