UK Bankruptcy myths exploded

When you go bankrupt you end up in jail, lose your house
and your car and you are thrown onto the streets to fend for yourself for at least 5 years and also if you own a company
then forget it mate will lose the lot!
What did you feel when you read that statement?
'Yeah I thought it was something like that' is the most
common thought or reply I come across. I state categorically
that all the above may be, and usually is, wrong depending
on your circumstances. Surprised?

Let me tell you some more about UK bankruptcy.
The British government went to find out why small enterprise
was booming over the pond but not so much in the UK. When
the report came back looking in depth on many areas the
British government concluded, amongst other factors, that the
USA is so enterprising because they had made it easier for
individuals to go bankrupt and start again having learnt from
their mistakes.
This was the precursor to the changes in the Enterprise Act which impacted the way personal bankruptcy is handled amongst many other areas of finance in the UK today.

At the time of writing, bankruptcy in the UK usually lasts
for no more than 12 months. In fact many people are
discharged in less than 12 months depending on the
circumstances around their bankruptcy. That's one year or less
in most cases! Previously the usually time for an individual to
be in bankruptcy was 3 years.
All that said, bankruptcy is a very serious step to take.
It is a very public affair and the event can follow you for many
years. Even after the bankruptcy has gone from your credit
history financial institutions in particular often ask if you have
ever declared yourself bankrupt. Your membership in some
societies and associations may also be lost.

What can't you do during bankruptcy?
Well you didn't think it was all a breeze did you?
There are a number of things you need to be aware of:

1) You can't ask for more than £500 of credit without first
informing the lender that you are bankrupt. That's usually the
point at which they start sprinting away from you in their rush
to not get their fingers burnt. Remember a lender doesn't just
mean a bank, it can mean friends and family. Even if you agree
to buy a car off a friend and they say here take it now and pay
me the money next week then you are in a credit agreement
probably worth more then £500 and so you have to legally tell
them about your bankruptcy.

2) You cannot be a director of a limited company whilst your
are bankrupt. If you area one-man band or a sole trader, this
doesn't mean you cannot trade as a sole trader. Yes, you get
to keep your business assuming you haven't traded
fraudulently but you do lose your limited company status
in this instance.

3) You will lose certain positions of authority. Think councillor
or accountant or high-ranking police officer. There are many
more roles that are affected. Do check with a professional that
your job is not affected if you do decide to go bankrupt. Some companies actually have a 'no bankrupts' policy in their
employment contracts. It's time to read your contract again.

Other stuff to consider
There is an impact on your credit file for 6 years. This means
there is a record of your bankruptcy on your credit file that can
be seen by lenders and anyone with access to your history.

Your name will appear in the local newspapers under the
bankruptcy notices section and the London Gazette.
On the day of your bankruptcy all your bank accounts are
frozen by the Official Receiver (the person appointed by the
courts to administer your bankruptcy). If you owe that bank
money on the day of your bankruptcy then it is unlikely they
will reopen your account. Any accounts in credit will see that
money going to the Official Receiver to go towards repaying
costs and debts associated with the bankrutpcy.

The really nasty bit that your friend down the pub forgets to
tell you. One of the Official Receiver's roles in administering
your bankruptcy is to look at your assets and disposable
income and determine your ability to repay your debts.
If you have disposable income available then you may end
up paying a proportion of that to the Official Receiver over
the course of 3 years under an income payment order
or income payment agreement. This is a commonly
overlooked fact by many a 'lay person' giving debt advice
down the pub to a friend. It's can also be a costly bit of
overlooked advice.

What about your house and car?
Well this needs to be understood and talked through
with a professional but the general rule of thumb is this:
If you own a house then the Official Receiver will take an
interest in that property even if it is in negative equity.
You may even lose your house in some circumstances
even if you have a wife and child at home. The Official
Receiver will also be looking to realise funds from the car,
caravan or any other valuable asset (anything of value really,
start thinking about pensions funds with a cash in value,
windfalls, endowment policies, valuable artwork, intellectual
property rights, websites....etc.). And this is not just in the
run up to bankruptcy. If you have a windfall during your
bankruptcy period then that is liable to be made available
to the Official Receiver administering your case and paid
towards their fees and the losses of your creditors.

What about HP agreements?
HP agreements usually have a clause that if you become
bankrupt then the asset (usually a car) must be returned
to your HP company. As the car legally belongs to the HP
company it cannot be sold off by the Official Receiver.
If you are meeting your regular payments to the HP
company and the Official Receiver deems that the
payments are reasonable for your needs then a
conversation with the HP company would be prudent
at the earliest opportunity.

If you are going bankrupt for a second time.
The other changes to the Enterprise Act means that people
going bankrupt for a second time will likely be made bankrupt
for at least 5 years and possibly up to 15 years before being discharged.

Be aware and get proper advice.
Do get good advice from somebody that will guide you through
the whole process and not just send you off in the direction of
the local courts. Do sit down and get an experienced professional
to go through everything in detail. Be aware of all the factors
that will affect you if you decide to go bankrupt. Whilst this
article is accurate, it cannot be used to replace advice from a professional organisation.

This article does not constitute regulated advice. Please
remember that any action regarding financial advice should
always be taken only after considering the specifics of your
own situation.

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