Information about bankruptcy - Separating Fact from Fiction if you go bankrupt
Here are some common misconceptions about when you go bankrupt that we regularly come across:
“I’m worried that bailiffs do come to take my things away”
Usually nobody comes to your home to take anything when you go bankrupt. Your personal possessions, for basic domestic needs, and even your vehicle (if you need it to get to work and is of low value or on finance) may all be excluded from the bankruptcy estate (See section 283(2) of the Insolvency Act 1986).
“…but you won’t be able to have a bank account when you do go bankrupt”
It is unlikely that you would have a problem getting a basic bank account. In fact if your bank is not a creditor it may be that you can keep your existing account. We can advise on banks that provide basic accounts for when you go bankrupt.
“I am worried what my neighbors would say as your name would go in the local paper when you go bankrupt”
Since April 2009, with the introduction of an amendment to the insolvency rules, the names of bankrupts are not normally published in the local paper. This is only done in exceptional circumstances where there is public interest. This means that when you go bankrupt it is as private as any other form of insolvency.
“I have heard that you do have to make monthly payments even after you go bankrupt”
This may be true. It depends on your monthly surplus income. There is a procedure when you do go bankrupt called an Income Payments Agreement (IPA). This is where your income and outgoings are reviewed and if you have more than a limited amount of surplus income, then you may be expected to pay the whole amount of the surplus each month for 3 years after you go bankrupt. However, if you allow us to help you with this, which is a standard part of our service, then we can make sure that all of the expenses allowable for your circumstances are included. This can dramatically reduce your surplus and may avoid you receiving an IPA after you go bankrupt. If you do, then it will be the lowest possible for your situation.
“but you do lose your house if you go bankrupt”
Not necessarily. If you are a property owner, it is true that your property is at risk if you do go bankrupt. However, it is unlikely there would be a problem if it is in negative equity. If this is the case then after a period of time, if it is still in negative equity, you may be offered the beneficial interest back and provided you do keep up with the mortgage and secured loan (if applicable) payments then you may keep the property. The issue is where equity is concerned, if this is the case then there would be the opportunity for the equity (or beneficial interest) to be purchased by a 3rd party. If this option is not taken up then a charge can be placed on it or there may be an application to have the property repossessed with any profit shared amongst the creditors. If it is the family home then this would not happen for some time after you do go bankrupt to allow for alternative accommodation to be found.
“If you do go bankrupt it stays on your credit history for ever and you could never get credit or a mortgage again”
In fact, like other forms of insolvency, such as an IVA, if you go bankrupt it stays on your credit history for 6 years but after around 3 years you may be able to get a credit card or a mortgage again. You can start rebuilding your credit rating as soon as you are discharged from bankruptcy, although a lot people we help tell us they are not in a rush to get credit again after they go bankrupt!
“I’m worried about when you go to court and being in front of everybody when you go bankrupt”
It is understandable that people worry about going to court when you go bankrupt. However, you are not in front of a judge and jury. It is a civil matter and is handled by your local county court (or High Court if you are in its jurisdiction in London). You may not even see the judge when you go bankrupt but if you do then it will be a private meeting. We can explain in more detail about what happens at court.
“I have a joint unsecured loan with my partner. If I do go bankrupt then they will only have half of the debt”
Not true. If you have joint debt, it is a ‘joint and several’ liability. This means that if one party is to go bankrupt then the other party is liable for the full amount. Depending on your circumstances and if there is significant joint debt then it may be appropriate for both parties to consider bankruptcy. We do advise on this and although individual bankruptcy petitions need to be submitted we offer a discount on ‘joint’ bankruptcy situations. Ask your adviser about this
Contact us on 0845 862 9987 or 07925 183 287