What happens if you go bankrupt in the UK

The effects of declaring yourself bankrupt in the UK are still largely unknown by most people. Will anyone know if you go bankrupt? Does it show on your credit file? Will it affect your chances of getting a job?

According to a recent report, 2006 saw another steep rise in the number of people with county court judgments with nearly 850,000 consumers having CCJs registered. Many will see bankruptcy as an easy way out. But is it? By the end of 2006, more than 100,000 people had declared themselves bankrupt, a first for the UK. Figures published by the Government also show that more than 15,000 people bankrupted themselves and over 11,000 agreed an IVA in Q1 2007.

Equifax, the instant online credit information provider, expressed concern that many consumers do not understand the implications of going bankrupt, often thinking that it’s an easy escape from debt with no real consequences.

Neil Munroe, External Affairs Director at Equifax commented: “The 2002 Enterprise Act meant a bankrupt’s debts can be written-off after one year instead of three. This has led to a number of people struggling with debts seeing this as an attractive option to wipe the slate clean. However, whilst the bankruptcy will be cleared after a year, we are concerned that some people may not realise that the record of bankruptcy will remain on their credit file for six years. And this could have quite a serious impact on their future.”

Lenders use a persons credit history file when assessing applications for credit or loans. A history of bankruptcy could result in either being declined or paying a premium. It can also affect their ability to get a job. It can even affect a person’s ability to get a contract mobile phone as a credit agreement has to be taken out for the line rental.

Equifax has compiled a list of common misconceptions about bankruptcy so that consumers can make an informed decision.

COMMON BANKRUPTCY MYTHS

You won’t have to pay your creditors if you're bankrupt.
FALSE – Any assets you have (such as equity in a property), may be sold with the proceeds going to your creditors. Your monthly income will be assessed and if you have more than you need to meet basic living requirements, part of the surplus will be paid to creditors for a period of three years.

If you don’t pay your council tax the council can’t make you bankrupt.
FALSE – If you owe a minimum of £750 unsecured debt you can be made bankrupt – and that could include arrears on your council tax bill.

It costs nothing to go bankrupt.
FALSE – At the time of writing it costs £460, a fee paid at court covering court costs and the Official Receiver’s fee which are only accepted in cash.

People won’t know you’re bankrupt.
FALSE – Bankruptcy orders are declared on public record. They are advertised in the London Gazette and a local newspaper. Details are also displayed on the Individual Insolvency Register (accessible on the Insolvency Service website) for three months after you are discharged.

You can keep a car worth less than £3,000.
FALSE – when it comes to deciding whether your car will be sold to pay your creditors the value is irrelavent.

If you win the lottery or receive an inheritance you get to keep it.
FALSE – You are legally bound to inform the trustee of any assets received or acquired after the date of your bankruptcy. The trustee will claim all the money received and any excess released only after all costs and debts are paid, including any interest owed.

Bankruptcy restrictions only last 12 months.
FALSE – If you don't cooperate with the Official Receiver or your trustee the court can suspend your discharge from bankruptcy until you cooperate. So, in effect, you could be bankrupt indefinitely. It's also possible for the court to make a bankruptcy restriction order against you if you are found guilty of misconduct (such as getting a loan with no intention of paying it back just before bankruptcy). Such an order can result in most of the restrictions remaining for an additional 2 to 15 years.

Bankruptcy is the easy option.
FALSE – Changes to bankruptcy laws have cut the period that most people have to remain bankrupt before being discharged. But you will lose most of your assets and will be charged more to borrow money after being discharged as you will be a greater lending risk.

You will be able to borrow again after being discharged.
FALSE - Bankruptcy is held on your credit file for six years and lenders use credit history data to make lending decisions. This could make it difficult for you to obtain credit such as a mortgage, personal loan, credit card and even contract mobile phones.

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What happens if you go bankrupt in the UK

COMMON BANKRUPTCY MYTHS

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