Common Myths About Bankruptcy
Bankruptcy is one of those subjects where half of what you think you know about it, is probably false. There are lots of persistent myths about bankruptcy—from misconceptions to do with its duration, severity of restrictions, as well as repossessions. Today, we’ll be helping you get a better grip on the subject by dispelling 7 common myths about bankruptcy.
1. You’ll lose everything
The cartoon version of bankruptcy makes us believe that bailiffs will seize our car, tv, furniture, and eventually our home. This, however, is rarely how bankruptcy plays out. When you are declared bankrupt, there will be a process of repossessing your assets in order to pay your creditors. This, however, only applies to items of excessive value. Everyday belongings such as utensils and clothing are secure, as is your vehicle if it’s worth under £1000.
2. You can’t work again
Bankruptcy can be a stressful time, but so long as you follow the process correctly, it should have no impact on your current employment and your employer will not be contacted. That said, bankruptcy does place limits on your involvement in running a company and prevents you from working as a director of a company. It also means you can’t manage, form or promote any limited company without permission from the courts.
3. Everyone will know
‘Declaring bankruptcy’ sounds like front-page news, but in reality most people live without their bankruptcy ever being noticed. Theoretically, anyone can look up filed bankruptcies through the insolvency register, but practically-speaking not many people do. Your case is unlikely to be tabloid-material, so unless someone actively searches for your case through the insolvency register, no one will know about your bankruptcy. Note that your file will stay on the insolvency register for 3 months after your bankruptcy has ended.
4. You won’t be able to open a bank account
When you are declared bankrupt, the Official Receiver will inform your bank immediately. The bank will freeze your account, preventing you from using your cash card, pay money in or pay money out. This, however, doesn’t prevent you from applying for a new bank or building society account. The bank will ask if you are bankrupt, and from there they will decide whether or not you can open up a new account with them. Another key feature of bankruptcy is that you won’t be able to obtain credit greater than £500 without telling the creditor that you are an undischarged bankrupt. After your bankruptcy ends, you can obtain credit again and work towards a sensible credit score once more.
5. Bankruptcy lasts forever
Another common myth about bankruptcy is that it’s a looming black cloud that never entirely vanishes. As stated previously, bankruptcy is not as invasive and permanent as some may think. It certainly doesn’t last forever! Once the bankruptcy process has begun, there follows a 12-month process before your case is closed. After that, bankruptcy will stay on your credit file for 6 years. It might not feel like it at the time, but bankruptcy does end eventually.
6. Bankruptcy is a clean slate
The idea of bankruptcy being a clean slate is partially true, but not entirely. As a solution to insolvency, bankruptcy is akin to a fresh financial start for the debtor. That said, bankruptcy doesn’t clear all debts. For instance, debts such as those gained by fraud, maintenance settlements, personal injury damages owed, student loans, court fines and any debts you incur after the bankruptcy order are not included and remain with you after your bankruptcy has ended.
7. Bankruptcy is the only solution to insolvency
Contrary to common belief, bankruptcy is not the only solution to unmanageable debts. This misconception comes from believing that the terms bankruptcy and insolvency are synonymous. Whilst insolvency refers to a financial state wherein debts cannot be paid, bankruptcy refers to a legal process designed to get you solvent again. Bankruptcy is not the only legal process designed to combat insolvency.
Negotiated settlements, for example, are another way out of insolvency. The aim of a negotiated settlement is to reduce the amount of debt you owe to your creditors. In return, you will provide creditors with a lump sum payment as opposed to smaller amounts paid over a long period of time. For more information on negotiated settlements, click here to read a previous blog post we’ve written on the subject.
Silver Insolvency Solutions
Stephen Silver is an insolvency specialist with over 40 years of experience on the job. If you’re someone dealing with outstanding debt, concerned with cash flow or facing the prospect of bankruptcy, a limited free consultation with Silver Insolvency Solutions could be of enormous benefit to you.