Before you decide to declare bankruptcy in the UK you should weigh up its disadvantages. Knowing what these disadvantages are may change your decision to declare. The rules for the UK are not the same as they are in other countries and this post focuses on Bankruptcy in the UK.
There are certain disadvantages to declaring bankruptcy and you need to consider them all and see how they will adversely affect you and your family before making a definite decision to file.
So What Are the Disadvantages to Bankruptcy?
Bankruptcy is not free. You are going to have to pay at least £700 in court costs per person. Anything that usually deals with some kind of court is not free, there is usually always some court cost or fee.
You still may owe some debts once your Bankruptcy is finished. These will include debts such as child maintenance costs, student loans and more. These types of debt are not written off and you will still be required to pay them off.
Your credit will suffer as a result of declaring bankruptcy. You Credit Report will contain a record of your bankruptcy for 6 years. Once your Bankruptcy is discharged, after the 6 years it can be removed.
During the first 12 months of your bankruptcy you are not allowed to apply for credit. Once the 12 month period is over you can apply for credit, however for credit over £500 you are required to disclose your bankruptcy to the lender. However even then you may have a problem finding a lender that will approve you.
This is one major drawback for some, as even after the bankruptcy period has ended they find it hard to get approved for credit years after.
What Happens To My Possessions During Bankruptcy?
Once you file all of your assets will be turned over to the Official Receiver, this may include bank accounts, vehicles and even your home. You will also be required to let the Official Receiver know of any windfalls, inheritances or lottery money that you come into possession of. These will usually be taken from you to take care of your debts. If you are renting an asset it will be returned to the owner from which you are renting from.
Can I Lose My Job By Going Bankrupt?
Your employment may be compromised. You may either lose your job or be forced to close down your business if you own one. Ultimately this will force those you employ to become unemployed. If this happens you could lose your professional status as well. This could also prevent you from starting your own company back up unless the court approves and then it can only be under the same name.
There are certain jobs that people who are filing for bankruptcy are not allowed to do. For example becoming a trustee of a charity, taking on a role regulated by the Financial Services Authority, or even a job as a solicitor. Even people that hold jobs as stock brokers, lawyers and estate agents will be affected if they file for bankruptcy.
The Official Receiver residing over your bankruptcy will look at any high disposable income you may have and look into an IPA (Income Payment Agreement) for your bankruptcy. This goes towards paying some of the debt from your bankruptcy. This is achieved using monthly payments divided among your creditors over a period of three years.
Your name will be placed on an insolvency register which can be accessed online. Sometimes your name is also published in the local newspaper. Those who do read this may question you about your bankruptcy.
Bankruptcy can even affect your immigration status. This does not mean you are a bad person that can’t take care of themselves or their family. You are just using the last available course of action to take care of your future. Bankruptcy is stressful so it is a very good idea to weigh up your options before filing.
Written by Andy Gorton, the author and editor of the Bankruptcy Clinic.