What does Bankruptcy in the UK Really Mean?


Bankruptcy scares people. Good reason for it, too. But there are numerous myths surrounding that word and that status.

When bankruptcy is recommended as the best solution, the same type of questions are generally being asked. But many of the questions have been coloured by myth.

So, here, we’ll dispel the top 9 myths.

Myth 1: Everyone will find out

There used to be a section in your local newspaper that listed bankrupts. A bit like a public shaming, which really, when you think about it, is pretty ridiculous and thoroughly antiquated behaviour, in spite of the fact it was done as a way to inform creditors.

Now, this is rarely the case, unless in exceptional circumstances. Yes, your bankruptcy will still be given a mention in the London Gazette. But, hey, this is a creditors’ trade paper. Few other people read it.

The website belonging to the Government Insolvency Service lists it, too. Again, merely as a record, rather than to name and shame.

Myth 2: I’ll lose my house

Not always the case, nope. If you possess negative equity, you’ll possibly be allowed to remain and retain.

Myth 3: Bankruptcy will mean I don’t have to pay anything

Not quite. If on a monthly basis you have a surplus of income left, you’ll have to pay it towards your bankruptcy. It’s named as an “income payment arrangement” and has a duration of three years.

Obviously, the more surplus there is, the more you pay. The official receiver does take into account your living expenses, so you’ll not have to pay anything more than you can afford.

Myth 4: Bankruptcy lasts forever

Again, not quite. It may seem like forever, but most bankrupts are discharged within 12 months.

Nevertheless, it, the bankruptcy, is listed on your credit file for all of six years, and this will likely restrict the credit products which are available to you over that length of time.

Myth 5: Creditors cannot make me bankrupt

Break the terms and conditions of one single credit agreement and yes, your creditors can petition to push you into bankruptcy. This is only achievable if you owe any of them more than £750. Scratch that! As of October 2015, the figure has increased to no less than £5,000!

It’s uncommon that a creditor will petition for bankruptcy. It’s normally a last resort since they have to pay over £1,000 in fees for the petition.

Myth 6: I’ll never be able to get another bank account or a loan

Once you petition for bankruptcy, it’s true that your bank accounts are frozen. Some banks do not accept undischarged bankrupts. Others are fine with that scenario, providing the account has basic facilities only.

As for getting a loan. Well, as an undischarged bankrupt, that’s not going to happen. However, “undischarged” means for a 12 month duration. After that time, you can begin to rebuild your credit over and start to compare loans as you would under normal circumstances.

Myth 7: I’ll appear before a judge

You may well be brought before a judge clasped in irons, yes. Not likely! Bankruptcy does not take place in a courtroom, so you’ll not be held up in front of a plethora of observers and a jury.

Myth 8: An accountant is required to go bankrupt

For self-employed folks, an accountant is perhaps an advisable solution. The accountant can offer solid advice, though the same advice can be sought from sources that are free of charge.

You can also get an “assisted bankruptcy” service for which you could be charged a fee. Again, however, you can avail of such help free of charge, so there’s no real necessity to pay for it.

Myth 9: I’ll be dumped out of my rental property

Could be, yes. Most rental agreements list a section on insolvency, and the majority of those agreements will state that if you become insolvent you must pack your bags.

However, this wording tends to be utilized as a way of protecting the landlord’s interests. He/she/they want to be paid, after all. And they can be paid once you put your new budget together with the official receiver (OR).

If you’ve been a good tenant to date, and you’ve paid in a timely manner, most landlords will not insist that you pack your bags and leave with your tail between your sorry legs.

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