Many of those considering bankruptcy often abandon the idea due to fear of the unknown. With doubt surrounding all manner of issues, people opt for ‘safer’ options such as Debt Management Programmes (DMPs) or Individual Voluntary Arrangements (IVAs).
Ironically, the very alternatives designed to ‘soften the blow’ often result in protracted payment plans that achieve little or nothing. Under a DMP, there is little prospect of ever repaying the capital while most IVAs are abandoned after 2 – 3 years due to the payments being unaffordable and constantly reviewed.
Indeed, 80% of our client base is former DMP and IVA clients. With a maximum bankruptcy period of just 12 months (people are often released sooner) and an absolute guarantee that the debt is liquidated once and for all, smarter members of the public have seen the light. Who needs a five year debt plan when everything can be done and dusted in 12 months?
Of course, there are the usual doubts: ‘What will I lose?’, ‘Who do I see?’ and ‘Will I be embarrassed in open court?’ To put your mind at rest, here are the top 8 myths and the answer to the issues / questions:
- I will have to explain myself before a Judge. Wrong. As from 6th April 2016, bankruptcy applications are submitted online and people no longer attend court.
- Bankruptcy will ruin my credit rating forever. Wrong. In many cases, people have credit ratings of 700 – 750 (‘fair’) as soon as 18 months after discharge. If active measures are taken to improve credit ratings e.g. applying for ‘credit impaired’ credit cards and using them wisely, the score could be even higher. It is now possible to get a mortgage three years after discharge, provided there have been no problems in between.
- I won’t be able to have a bank account . Wrong. It’s true that if you had debt with your existing bank you would lose the account, but there are plenty of banks that don’t have a problem. After all, bankrupt people have no debt and are the customers of the future. Try Barclays’ ‘Cash Account’ or Cooperative Bank’s ‘Cashminder’ account if you are having problems.
- I will lose my mortgaged property. Not necessarily. If the house is in negative equity, any decision will be deferred for 27 months pending another assessment of the equity position. Even if it was found there was some equity after two years, a forced sale is still not certain. More likely is that a charge would be placed against the property, to be redeemed when the house was sold.
- Bailiffs will take everything away. Wrong. Bailiffs have got nothing to do with bankruptcy. Bailiffs usually only appear for one of two reasons a) non-payment of the monthly terms of a County Court Judgement or b) non-payment of Council tax following the issuing of a Liability Order.
- I will lose my job if I go bankrupt. Most unlikely. There are few professions that have restrictions and these are mostly in financial services and Solicitors, but for most everyday jobs this simply isn’t the case. Provided there is nothing to suggest otherwise in your contract, it will not result in you losing your job. We have taken countless NHS staff, teachers, Council and office workers through the procedure with no comeback.
- I will have to make monthly payments for the next three years. Not necessarily. In most cases, people are not placed in Income Payments Agreements. Provided it can be shown that there is less than £20 surplus income after all expenses, this will not happen. High earners with double incomes might be under threat, as might those with good incomes and still living at home, but in most cases an IPA can be avoided. We reckon the figure is one in six, maybe less.
- My Landlord will ask me to leave. Rarely. Good tenants are solid gold to Landlords and we aren’t aware of a single case where this has happened. If in doubt, try taking your tenancy agreement to court on the day of the bankruptcy. We’ve heard that the OR will consider not contacting a landlord provided there is clear sight of a tenancy agreement.
And there you have it, most of the issues have been debunked. There might be other factors that we haven’t covered here, but give us a call and we will talk you through it.