Write Off Unaffordable Debt
Bankruptcy
You might be surprised to learn that for many people, going bankrupt can be the best way to manage debt. Whether or not it is a sensible option for you will depend on your circumstances.
Use this guide to find out the answers to many of the most common bankruptcy questions.
Need specific advice to decide whether bankruptcy is right for you? Get in touch today to speak to one of our experts.
What Is
Bankruptcy?
Bankruptcy is one of the personal debt management solutions you can use if you are struggling with your debts in the UK.
Anyone who owes more than £750 to their unsecured creditors can use this debt solution.
You might think you should only go bankrupt as a last resort. However, that is not true.
For many people, it can actually be the most sensible and fastest way to resolve your debt problem.
Bankruptcy Key facts:
• If you go bankrupt, all your unsecured debt is written off. This includes utility arrears and tax owed to HMRC.
• You are bankrupt for just 1 year (12 months). After that it is over and you are known as having been discharged.
• You do not have to pay anything towards your debts unless you can afford to do so.
• If you can afford to make a monthly payment because you have a surplus income, you only have to do this for a maximum of 3 years. Compare this to using an IVA where you have to pay for 5-6 years or a debt management plan your payments are likely to last many more years.
How Will Bankruptcy
Affect You?
How going bankrupt will affect you will depend on your circumstances. This means that it will be right for some people but not others.
Some of the main things you should think about are as follows.
Who will find out?
Bankruptcy is a surprisingly private debt management solution.
You may be surprised to learn that no-one you know is likely to find out unless you choose to tell them. Your employer and landlord will not be told.
Your name will NOT be published in the local newspaper. This no longer happens if you go bankrupt in England, Wales or Scotland. This process is only used if you go bankrupt in Northern Ireland.
Your name and address is recorded in the insolvency register. This is accessible via the internet. However, given most people do not even know this list exists. As such, it is very unlikely any of your friends or family would ever see it.
A record of your bankruptcy does remain in the Gazette archive. However this record is not publically advertised and will not affect your ongoing credit rating.
Will you have to sell your car?
You are allowed to have a car if you go bankrupt. However, it does need to have a maximum value of around £1500-£2000.
If your vehicle is worth more than this, you may have to sell it and get a cheaper one.
Where your car is on finance, you may be able to keep it even if it is worth more than £2000. However, the outstanding finance must be greater than the value of the vehicle.
Some car finance companies will demand the return of your vehicle if you go bankrupt. Speak to us for advice if your car is on finance
Note: Where you are self employed and your vehicle is a tool of your trade, its value is allowed to be higher.
What happens to your house?
Rented accommodation
Where you live in a rented property, bankruptcy could be a sensible option for you.
As long as you continue paying your rent on time, your home should not be affected. Your landlord will not be told unless you have rent arrears.
Rent arrears: If you are in arrears with your rent, you should not go bankrupt without first getting advice from us. Your tenancy could be affected.
Homeowner
If you are a homeowner, you have to think more carefully before you go bankrupt. Your options will really depend on the amount of equity in your home.
Where you have little or no equity, your property is unlikely to be at risk and going bankrupt might still be an option.
However, if you do have a considerable amount of equity, you could be forced to sell. In these circumstances, going bankrupt might not be the right solution. An IVA might be a better option for you.
Note: Declaring yourself bankrupt does not automatically mean that you will lose your house if there is little equity or the property is in negative equity.
Will your job be affected?
It is very unlikely that going bankrupt will have any effect on your job.
Your employer will not be told and you simply continue going to work as normal.
There are a small number of roles which you can’t continue to do if you go bankrupt. These include being a company director.
If your employer requires you to maintain a clear credit rating, going bankrupt will be a problem. However, it would mean that you would also be prevented from using a debt management plan, IVA or a debt relief order.
Debt Written Off
Most unsecured debts are cleared
12-Month Process
Bankruptcy usually ends after one year
Affordable Payments
Payments only apply if you have surplus income
HMRC Debts Included
Tax and VAT arrears are covered
What Happens To
Your Credit Rating?
Going bankrupt will negatively affect your credit rating for 6 years.
Once you are bankrupt, the credit reference agencies will make a record on your credit file.
This will make it difficult for you to get new forms of credit.
The record of your bankruptcy will remain on your credit file for 6 years. It will automatically be deleted on the 6th year anniversary. There is nothing you can do to change this date.
Improving your credit rating after bankruptcy
Once your bankruptcy has ended (after 1 year) there are steps you can take to start improving your credit rating.
The most effective of these is to start using a so called credit repair credit card. These cards are available from lenders such as Capital One, Aqua and Vanquis.
You are likely to be given a relatively small credit limit – normally £250-£500.
Use the card each month for everyday purchases such as shopping and fuel. Make sure you pay off the balance in full each month.
Using a credit repair card in this way means you start to build up a record of responsible credit usage on your file. This will improve your credit rating and gain access to additional forms of credit (such as personal loans and overdraft facilities) more quickly.
In addition, you will not have to pay any interest.
Note: It is unlikely that you will be able to get a mortgage with a high street lender until the bankruptcy record has gone from your file. In other words after 6 years.
How Much Does
Bankruptcy Cost?
In England and Wales the cost of Bankruptcy is currently £680 per person.
This is made up of an Application Fee of £130 and a Bankruptcy Deposit of £550.
This fee must be paid in full before you submit your application. There are no exceptions or exemptions. It can be paid via the Government’s on-line application system using a debt, credit or prepaid card.
You can pay your application fee in instalments if you pay by card. However your will not be allowed to submit your application until the fee is paid in full.
The cost of going bankrupt in Northern Ireland and Scotland is different.
Legal Protection
Creditors must stop enforcement action
Job Usually Unaffected
Most people continue working as normal
Home Depends on Equity
Little or no equity often means no risk
Credit File Impact
Recorded for 6 years
Advantages of
Bankruptcy
There are number of advantages of going bankrupt. Whether they are relevant to you will depend on your individual circumstances.
1. No payments unless you can afford to make them
Once you are bankrupt you no longer have to make payments towards your debts if you can’t afford to.
If you can afford to make a payment you will have to do so. This is known as an Income Payment Agreement (IPA). The payments only last a maximum of 3 years. Any outstanding debt is then written off.
2. Bankruptcy only lasts 12 months
You are only bankrupt for 12 months. You will then be discharged and no longer bound by the restrictions of bankruptcy.
3. Debt written off
Once you are discharged from your bankruptcy, your debts are taken away from you and you no longer have to repay them.
You will only continue to pay towards your debts if you have an income payment agreement which will only last for a maximum of 3 years.
4. HMRC Tax and VAT debts included
If you have any HMRC debts such as tax arrears these will all be included and written off in bankruptcy.
5. Legal protection
When you are bankrupt, you get full legal protection from your creditors. This means they are no longer allowed to take enforcement action against you.
Any CCJs issued against you are over turned
Bailiffs must cease all collections activities
All applications for court action must stop
Disadvantages of
Bankruptcy
It is important to understand that as well as the advantages, declaring yourself bankrupt can also have some disadvantages. Before making a decision to go bankrupt you need to understand these in the context of your circumstances.
1. Homeowners property may be at risk
If you are a homeowner, your property could be at risk.
The Official Receiver will not automatically demand that you sell. However, if there is significant equity in your home, then they are obliged to realise this. If no other agreement can be reached, this could mean a a forced sale.
The risk to your property is minimal where you have little or no equity or your property is in negative equity.
2. May have to get a cheaper car
In bankruptcy you are allowed to have a car if you need one for work or other reasonable family commitments. However your vehicle can’t normally be worth more than £1500-£2000.
If your car is worth more, you may be forced to sell and replace it with a cheaper one.
3. Not allowed to be a company director
In most cases, your job will not be affected if you go bankrupt. However, it is important to note that you can’t be a company director.
If you are a director of a company, you must resign from your position. You can become a director again as soon as your bankruptcy is over.
If you are a company director or self employed and want to discuss your options for bankruptcy, get in touch with us today.
4. Negative effect on credit rating
If you are declared bankrupt, a record will be listed on your credit file. As a result, your credit rating will become significantly worse.
You will be able to start improving your credit rating again once your bankruptcy is over. However, it is unlikely you will get a mortgage from a high street lender until the record has come off your file (after 6 years).
Let's Talk
If you need advice and help with your personal debt, get in touch with us today. Talk to us in confidence. Take control of your finances. Get on the way to becoming debt free.
Wilmott Turner Financial Services Limited
Company Registration Number: 692502
Call us now on
0800 088 7376
Drop us a message @