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If you have been forced into bankruptcy or have decided/been advised it is the best course of action for you, it’s important to know the ins and outs of what to expect.

What is bankruptcy?

Bankruptcy is a debt solution available to someone whose total debts are larger than the value of their assets, or who can no longer pay their lenders when their bills are due.

Your creditors can apply to Court and ask for you to be made bankrupt if you fall into arrears with your repayments. However, you can also apply to go bankrupt on your own to get your finances in order.

If you are declared bankrupt, you are stating that you are unable to pay off your outstanding debts and are agreeing to pass the responsibility for your debt repayments to a trustee. They will be responsible for selling your assets to pay back as much as possible to your creditors. The trustee will also go through your finances and look into why you got into this situation.

How long can bankruptcy last for?

Bankruptcy will usually last for 12 months and remain on your credit report for 6 years after the date of the bankruptcy order.

The debts included in your bankruptcy will be written off once you are discharged, but you may still be expected to pay towards your debts for 3 years if you can afford to do so. You will also have to tell any lender you are bankrupt if you are applying for £500+ of credit and you will not be allowed to act as a director of a company, unless you have permission from the Court.

What impact can bankruptcy have on everyday life?

Once you have been declared bankrupt, your home may be at risk. If you are forced to sell it to pay back your creditors, you will have to arrange alternative accommodation that fits within your new budget. Moving home can be stressful and you may need to move to a location that you’re not used to, due to financial constraints. However, you will be given plenty of notice if this is the case.

Whilst bankrupt, you may find that it’s difficult to take out credit or insurance. Some lenders may not wish to offer you cover if you are seen as financial liability and if you are offered something, it could come with an extremely high interest rate attached to it.

What happens after bankruptcy has been completed?

Once your bankruptcy has been discharged after a year, it will remain marked on your credit file for a further 5 years. You may find that getting credit (with a competitive interest rate) and opening a new bank account will be tricky whilst bankruptcy is on your credit file.

You may be expected to pay money into your bankruptcy if you can afford to and you may find that everyday living will be very different to what you were used to. You may have to cut back on luxury items and focus more on sticking to a budget and rebuilding your credit score, so you can get on with your life.

Once the bankruptcy has been removed from your credit file, you will be able to obtain credit easier and you can start rebuilding your credit score. The whole experience should act as a reminder that you will need to keep a closer eye on your budget in the future, so you don’t get back in the same position again.

Can I cancel my bankruptcy?

Yes, you can. Cancelling your bankruptcy can lift the restrictions imposed on you and your credit rating but you will only be able to do so if the following circumstances apply:

  • All of the debts and costs in your bankruptcy have been repaid in full
  • You’ve arranged an Individual Voluntary Arrangement (IVA) with your creditors instead
  • It was discovered the bankruptcy order shouldn’t have been made in the first place

Get free debt advice

If you are undecided on what the best debt solution is for you, our team will be happy to talk you through what options are available. We’d advise you consider all debt solutions available to you before opting for bankruptcy.

Call us for free on 0800 316 1833 or visit www.payplan.com/debt-help/