The Effects Of Bankruptcy

The effects of Bankruptcy

This section covers the effects of bankruptcy and what happens when you go bankrupt:

Bankruptcy is a big step and one which needs to be considered very cautiously.

The effects that bankruptcy has on your life and credit ratings are severe.

Ultimately bankruptcy is the last step in dealing with debt problems.

Dependent upon your personal circumstances going bankrupt may not the best debt solution and can often be avoided with individually constructed debt management plans and IVAs.

Before you take any action to declare yourself bankrupt, you should seek expert advice about bankruptcy and the other options available to you. The Insolvency Service and the courts cannot advise you on specific insolvency problems; for example, whether you should go bankrupt.

Effects of bankruptcy

Once you have been made bankrupt all assets belonging to you come under the control of the Trustee, including your home.

If you live with a partner and/or children then a period of twelve months may be allowed for other living arrangements to be made. At the end of the twelve-month period, the property will almost certainly have to be put up for sale, enforced by a Court order if necessary. If you own the property with someone else they may be able to make an offer to buy out your interest in the property from the Official Receiver.

The other main disadvantages of bankruptcy are the restrictions placed upon you and the stigma of having to declare oneself as a bankrupt for certain transactions.

Bankruptcy is just one of several options to be considered when you cannot repay your debts. If you are ever faced with the prospect of bankruptcy you should always look at alternatives as soon as possible such as an
Individual Voluntary Arrangement or a Debt Management Plan.

Bankruptcy can free you from overwhelming debt to give you a fresh start on your finances, however it is a serious commitment and should not be entered into lightly. Make sure bankruptcy is your right option by using the form on the left.

Bankruptcy Restrictions

You have to follow bankruptcy restrictions when you’re bankrupt. This means that you can’t:

• Obtain credit of £500 or more alone or jointly with another person without disclosing his or her bankruptcy
• Conduct business directly or indirectly in any name other than that in which he or she was made bankrupt
• Be involved directly or indirectly in promoting, forming or managing a company without the Court’s permission
• Hold certain public offices

When a bankrupt is discharged these restrictions are ended. A bankrupt may open a new bank or building society account but should disclose the fact that they are bankrupt. The bank or building society may then impose conditions and limitations. Overdraft facilities or chequebooks must not be obtained, as they are likely to be dishonoured. The bankrupt must inform the Trustee of any funds available in the account, which exceed the normal living expenses, in order for the Trustee to distribute among the creditors.

What can I keep if I'm bankrupt?

Whether or not you are currently receiving your pension, the trustee cannot claim: your state pension or any payments from the State Earnings Related Pension Scheme (SERPS);

• any of your occupational pension if your occupational scheme has a clause forfeiting pension benefits following bankruptcy (the trustee could claim the benefit of a personal pension policy, even if it has a similar clause); and
• any protected rights - these rights arise in any pension you may have where you or your employer have contracted out of SERPS. They represent the equivalent of the SERPS benefits within your pension. In an occupational pension scheme, the protected rights might be known as ‘a guaranteed minimum pension’ or ‘benefits under the reference scheme test’.

When he or she has all the information about your pension, the official receiver or your trustee will be able to tell you what part, if any, of your pension is being claimed as an asset in your bankruptcy. Even if the trustee cannot claim your pension, or any part of it, the amounts you receive may still be included in the calculation of your income, if the trustee applies to the court for an income payments order’ during your bankruptcy. (The court may order you to pay part of your wages, salary or other income to the trustee.)

What happens to the lump sum payable under my pension?

If your trustee can claim your benefits under an occupational pension scheme or personal pension, this will include any lump sum that is payable as well as the regular payments you are entitled to receive.

What information will the official receiver and/or my trustee need?

You can keep any tools, books, vehicles (if low value) and other items of equipment needed personally in your employment or business. You will also be able to keep your clothing, bedding, furniture and basic household items.

N.B. Are you sure declaring bankruptcy is the only option?

But before you apply for bankruptcy make sure you're certain you've considered the following questions:

• Would an IVA help me in my situation?
  
  
• Could a Debt Management Plan solve my problems?

• Last updated 06 January 2016

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