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Bankruptcy Myths Debunked

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 made up of former DMP and IVA clients. With a maximum bankruptcy period of just 12 months and a 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 eight myths and the answer to the questions:

I will have to explain myself before a Judge. This is no longer an issue as cases are now processed online and there is only one phone call involved, but no face to face interaction. Other communication will be by letter and email, but nobody comes to your house at any point during the process. You can literally enter into bankruptcy from the comfort of your armchair.

Bankruptcy will ruin my credit rating forever. Wrong. In many cases, people have good credit ratings as soon as 18 months after discharge. If active measures are taken to improve credit ratings, it is now possible to get a mortgage three years after discharge, provided there has been no trouble in between.

I won’t be able to have a bank account . It is now extremely rare for banks to close accounts unless there was debt with the bank in question. However, if you are having problems try the Barclays’ ‘Cash Account’ (which has a chip and pin card) or Cooperative Bank’s ‘Cashminder’ account. Both will welcome you with open arms.

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 unlikely. 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 the bankruptcy process. 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. If you have neither of these you will not see a bailiff.

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. 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. Although it’s true that the Official Receiver will assess whether you have any surplus income with a view to placing you in a payment agreement, this is avoidable. We use the  same income calculators as the OR and know the limits of everything that can be claimed in overcoming this problem.

My Landlord will ask me to leave. If you feel that your tenancy may be under threat, you can now overcome this issue by providing a copy of your tenancy agreement to the Official Receiver upfront. Provided your landlord isn’t one of the creditors in the bankruptcy, no letter will be sent.

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 on 01425 600129 and we will gladly talk you through it.

Top 10 Bankruptcy Quick Questions

Bankruptcy Questions

For more detailed answers to the Top 10 Bankruptcy Quick Questions please visit our FAQs or Bankruptcy Questions, but for now here are our Top 10 Bankruptcy Quick Questions:

Is it true that I no longer have to attend court for bankruptcy?

Correct, everything is done online now. The case is initially referred to the Adjudicator is Bankruptcy, who then passes it on to the Official Receiver as has always been the case.

Can I get a reduction on the £680 Bankruptcy Fee if I am unemployed?

No, everyone has to pay this fee regardless of circumstances.

Will I lose my job if I go bankrupt?

No, this won’t happen unless you are employed as a Solicitor, Mortgage Broker, Financial Adviser or similar position. Every day jobs (NHS, retail and office jobs) are not affected.

Will I lose my car if I go bankrupt?

Cars on finance will be lost, but you are otherwise allowed to have a car valued up to £1,000 provided it is needed for work or you are a Carer.

Does anyone come to my house if I go bankrupt?

No, nobody comes to your house at any stage to assess whether you have assets. Bailiffs do not form part of the bankruptcy procedure and will not arrive on your doorstep.

Will my Landlord be informed if I go bankrupt?

Yes, but this can be avoided if you produce a tenancy agreement and advise the Official Receiver that your tenancy may be under threat if your Landlord is informed.

Can I have a bank account if I go bankrupt?

Yes, this no longer an issue, though you will definitely not be able to keep an account that formed part of the bankruptcy e.g. a loan and overdraft was included.

Will I ever be able to get a mortgage if I go bankrupt?

Yes, it is now possible to get a mortgage three years after discharge, provided there has been no trouble in the interim.

Should I use a Solicitor for bankruptcy?

No, this will be too expensive, but it’s important that you seek advice as the online application is fraught with danger. The Income and Expenditure section has been designed to trip people up.

Will I have a monthly payment after bankruptcy?

This relates to the previous question, where a bodged Income and Expenditure will see you tied up in an Income Payments Agreement for three years. Call us, we know how to make this problem go away.

Feel free to call us on 01425 600129 for clarification on any of the above or for bankruptcy help.

Is an IVA better than a bankruptcy?

The only way to truly answer to Is an IVA better than a bankruptcy? would be to look at the failure rates of IVAs after the first 18 months.

They sound great at the outset but a significant number fail in the first two years. More importantly, the IVA companies that arrange these debt solutions are motivated to sell IVAs ahead of anything else as there is more profit involved, and this biases their presentation accordingly.

Individual Voluntary Arrangements and bankruptcy are both legally contracted debt solutions, yet are essentially very different. The prime function of an IVA is to protect assets such as properties and businesses, which might otherwise be lost in bankruptcy. Bankruptcy, on the other hand, is ideal for those who do not have significant assets, are living in rented and holding down everyday jobs like the rest of us. They both harm your credit rating, but it is a fact that discharged bankrupts can now get mortgages within three years (other forms of credit within 18 months), whereas there is no chance of this happening for those tied into IVAs for 5 – 7 years (many IVAs extend well beyond 60 months).

The big selling point for IVAs is that part of the debt will be written off ‘using Government legislation’ based on affordability, yet any apparent savings are soon eroded by the fee structures.

We speak to  dissatisfied IVA holders who all complain about the same things : once the IVA is set up it is almost impossible to speak to anybody from the company; there are frequent ‘reviews’ and requests for more money, and there is very little understanding if anything goes wrong with your finances (illness, redundancies, etc.).

Another complaint is that nothing appears to be paid off the debt for the first two years. The reason for this is that you are paying off the set up fees during this period and not a penny goes to the creditors. Is an IVA better than bankruptcy is a question often asked. The answer each and every time will be determined by……..”What have you got to lose’.

We could talk considerably about the injustices of IVA companies that have set up arrangements for those who should have been recommended bankruptcy at the outset, but what it all really comes down to is whether you have any assets or not. And if you don’t, you certainly wouldn’t want to be tied into an IVA for five years.

Feel free to call us with any questions or for bankruptcy help on 01425 600129, we are here to help. Most of our staff are from the financial services sector and have the experience to get you best result every time.

Is My Partner’s Income Taken into Account in Bankruptcy

Many of the people we speak to are surprised when we ask about total household income. ‘Is my partner’s income taken into account in bankruptcy ? ‘ is often a question asked. Especially when only one party is going bankrupt. But believe us when we tell you that getting the Income and Expenditure right is really important, as this will decide whether you end up in an Income Payments Agreement (IPA) for the next 36 months, or not.

It’s what your partner contributes and not what they earn that is the key issue

For this reason, you need to know we need to know what your partner contributes towards household income, rather than what he or she earns. It could be, for example, that your partner takes home £1200 per month, but by the time his / her car finance, credit cards and other expenses (child support, for example) has been deducted, only £700 is available and this is the figure we are talking about – what they contribute towards the bills and food.

This would not apply in cases where both parties are going bankrupt – here we would need to know the full take home pay of both parties. It’s not all bad news, though as now we can factor in allowances for two people instead of one and that makes a big difference.

Is my partner's income taken into account in bankruptcy

People thinking about doing their own bankruptcy would do well to seek advice when attempting the Income and Expenditure as a bodge job could cost you dearly. Even an IPA of £80 per month works out to just under £3000 over a 36 month period, something you could well do without. Our experts know all the allowances and will guide you through this.

Feel free to call us with any questions relating to Is my partner’s income taken into account in bankruptcy  or for bankruptcy help on 01425 600129, we are here to help. Alternatively, post a question on our home page and we’ll help you that way. Please note, Court appearances are no longer required for bankruptcy and Bailiffs do not form part of the process.

Apply bankruptcy online

Apply bankruptcy online ? So you’re thinking about doing your own bankruptcy .. read this first

With the advent of being able to apply for bankruptcy online online almost seems like fun to apply for bankruptcy online these days, but the process is fraught with hidden dangers. We won’t go as far as saying the Insolvency Service has deliberately laid traps for us all to blunder in to, but after completing around a hundred of these applications we urge caution before proceeding.

The online application comprises eight sections and it all starts off harmlessly enough, but where it becomes really tricky is the completion of the income and expenditure. Bearing in mind that this will decide whether you will be placed in an Income Payments Agreement (IPA) for the next three years or not, you’d best answer all the questions correctly.

Here, the Insolvency Service is generously inviting us to claim costs for things like hairdressing, social clubs, alcohol, tobacco, entertainment, newspapers, magazines and gifts – but guess what? These things are not allowed!

We counted around 18 separate items that would definitely not be allowed and if you happened to include any of these in your income and expenditure, you would have unwittingly painted yourself into a corner. If you consider that an IPA of £150pm will cost £5400 over three years, we recommend you seek professional assistance. We are especially aware of the importance of the income and expenditure and know exactly what may be claimed and for what amount.

Another area where we experienced difficulty was in loading the various creditors. In one case, we wasted half an hour trying to figure out how to load ‘Intelligent Finance’ which was being repeatedly rejected. It turned out that you have to initially enter ‘Intelligent’ without the ‘Finance’ and it then gives you options – talk about obtuse!

Bankruptcy UK offers bankruptcy help for those who might be unfamiliar with the jargon and procedures involved in submitting an application online. We will take care of everything and submit your application to your best advantage.

Court appearances for bankruptcy are no longer required. Feel free to call us on 01425 600129 for an informal chat about your circumstances.

Bankruptcy fees reduced from 6th April 2016

The Insolvency Service has announced that bankruptcy fees will be reduced from the current £705 to £680 from 6th April 2016 as it rolls in its new online service. The bad news is that this applies across the board and there will no longer be ‘Court Fee Remissions’ for those on lower incomes, pension or benefits.

The fee comprises two elements i.e. the Adjudicator’s Fee of £130 (which replaces the old Court Fee) and the Bankruptcy Deposit of £550, which is really the Official Receiver’s Administration Fee. Good news is that people no longer have to attend court for bankruptcy hearings.

Feel free to call us on 01425 600129 for a chat about your circumstances or for bankruptcy help.

The Sheriffs are coming … but who exactly are they?

You might have seen them on TV and marveled at how successful they at getting payments out of debtors, but just who are these people and how do they operate?

To start with, we need to readdress them as High Court Enforcement Officers (HCEOs) and they swing into action once in possession of a High Court writ of control (formerly known as a writ of Fieri Facias or Fi Fa). If you have successfully obtained a County Court Judgement for more than £600, you can apply to have it transferred up to the High Court, at which point the required Writ of Control can be obtained.

The HCEOs initially write to the debtor, but if payment is not received in full during the notice period, the HCEO attends the debtor’s premises to enforce the writ and that’s when you hear the now-familiar ‘I have been instructed by the High Court to seize goods to the value of ..’ and you see the debtors’ faces crumble. All costs are added to the Writ and the Debtors suddenly find themselves wondering why they didn’t just cough up in the first place.

You could, of course, use everyday County Court Bailiffs but they don’t quite have the same clout, fear factor or incentive. Besides, after all the hassle you’ve been through, surely it’s worth the extra effort if only to see the look on their faces as they finally have to cough up.

Bankruptcy UK specialises in guiding people through the bankruptcy process in a no-nonsense, straightforward manner. We will assess your circumstances then submit the bankruptcy application online. call us for an informal chat about your circumstances and receiving bankruptcy help on 01425 600129.

Bankrupts can now get Mortgages provided …

It seems the bad times are finally behind us, as lenders are now offering mortgages for those with poor credit histories, including former bankrupts. Yorkshire, Chelsea and the West Brom will allow up to 65% loan to value (LTV), while plenty of other banks and building societies will do 60% LTV. Chelsea even has a 75% LTV option for some poor credit borrowers, but we were unable to confirm whether this included former bankrupts.

Mortgage Brokers are telling us that the rule of thumb for former bankrupts is three years of clean credit, but warn that banks are asking hard questions about affordability. Unlike the formulas of years gone by, where it was simply a case of 4 x joint income, banks are now grilling people to find out exactly what their outgoings are and how much it is costing them on a monthly basis. It might sound like hard work, but at least banks are finally taking responsibility, unlike the pre-recession days when anybody with a heartbeat could get a mortgage.

Bankruptcy UK offers a full bankruptcy administration service and will submit your bankruptcy application online. Court appearances are no longer required for bankruptcy. Call us for bankruptcy help on 01425 600129 or for an informal chat about your circumstances.

Should I use my pension to pay off my debts?

With the change in the pension rules, suddenly those over the age of 55 will be eligible to draw down larger sums e.g. £20,000 which could be used to settle debts. Those with long standing debts might view this as a salvation, but what are the side effects of drawing everything down and what else needs to be taken into account?

* The first thing that needs to be considered is the debt itself. How old is it and is it still enforceable? Any debt over six years old might be ‘Statute Barred’ under the Limitations Act 1980 – covered elsewhere on this website – and this needs to be investigated, perhaps by a visit to your local CAB.

* You will have to pay tax on the money you take out of your pension as though it is extra income and this might push you into a higher tax rate – again, this needs to be investigated. Although the first 25% is tax free, you will still be ‘burning away’ a good chunk of your pension in tax and we query the wisdom of doing this.

* You might be exchanging a short term problem for long term deprivation – some people are retired for three decades or more before passing away and loss of income could have a terrible effect in years to come.

* Taking a lump sum might affect your eligibility to certain benefits, especially Housing Benefit under something called ‘Deprivation of Capital’ – we recommend you investigate this thoroughly, as again, it could affect you for many years to come.

Suffice it to say, it is worth taking visiting your local CAB and taking advice before rushing headlong into something that might affect you for the rest of your life.

Bankruptcy UK offers a full bankruptcy administration service and will submit your bankruptcy application online. Court appearances are no longer required for bankruptcy. Call us for bankruptcy help on 01425 600129 or for an informal chat about your circumstances.

Pay Day Loans the ‘Kiss of Death’ for Mortgage Applications

Mortgage Brokers have reported that in the past 12 months 85% of mortgage applications involving previous Pay Day Loans, were rejected outright. And of the 85%, a staggering 57% had otherwise perfect credit histories.

Prior to 2012, it was impossible to distinguish between Pay Day Loans and other credit applications, but both Experian and Equifax now list these separately. Unlike other sources of credit which might actually aid a mortgage application, High Street lenders view Pay Day Loans as a financial cry for help and react accordingly. The message is simple: avoid Pay Day Loans at all costs, as even a satisfied one is the ‘Kiss of Death’ in the financial world.

Mortgage Brokers are not saying it is impossible to get a mortgage with a recent Pay Day Loan application on your credit file, but that they would have to ‘shop around’ for a willing lender and that the applicant would almost certainly end up paying a higher rate.

Bankruptcy UK offers a full bankruptcy administration service and will submit your bankruptcy application online. Court appearances are no longer required for bankruptcy. Call us for bankruptcy help on 01425 600129 or for an informal chat about your circumstances.

 

 

Bankruptcy UK

Bankruptcy UK