Tuesday, 12 April 2022
Our third article in this series and following on from our previous article ‘What is bankruptcy?’ we will dispel the common preconceptions people have when it comes to Bankruptcy.
On a daily basis we get told people don’t want to go bankrupt often as a misunderstanding of the process and various myths. Bankruptcy certainly isn’t the best option for everyone. We assess an individual’s circumstances on a case by case basis and guide them towards the approach that is right for them. Below is a list of some of the commonly asked questions we hear:
1. "If I go Bankrupt, I will lose everything"
Bankruptcy is there to help people write off debt but also to assist creditors recover some of their losses from a bankrupt’s estate. When an individual is adjudicated bankrupt all their assets vest in the Official Receiver or their Trustee, who is an individual appointed to manage a bankruptcy estate. Under current insolvency legislation a bankrupt is allowed to retain possessions that are essential for both their work and day to day family life. This generally includes tools of your trade, a motor vehicle (up to a certain value), household goods and items held on Trust. There are also special rules around your home and pension, but that is a whole topic in itself.
2. "If I go Bankrupt, I will not have a bank account"
When an individual is adjudicated Bankrupt, it is standard practice that their bank account is frozen. This is because any cash in a bank account is deemed an asset of your bankruptcy and therefore should be realised for the benefit of unsecured creditors. However, if your account is used for day to day expenses and there is no excessive cash value (or irregular transactions) then the Trustee in Bankruptcy normally writes to your bank to confirm that they have no objection to your account being unfrozen and going back to normal operation. It is therefore up to the bank in question as to whether they allow you to retain an account within the Branch. If your bank decide that they no longer want you as a customer, there are always other banks who will take you on.
If your bank account operates an overdraft then it would be common practice for the bank to withdraw this facility. If your account was overdrawn at the time of the bankruptcy order being made then this debt is an unsecured creditor. In this event it is more unlikely that the bank would allow you to operate this account.
3. "All my debts will be written off in Bankruptcy"
Unfortunately this is not the case. Bankruptcy is a legal process of writing off most unsecured debt e.g. credit card, store cards, unsecured loans etc, it does not write off secured debt e.g. mortgage debt, Hire Purchase etc or certain unsecured debts such as:
Student loans
4. "My debts die with me"
Unfortunately, this is a common assumption that many people believe, however it is unfortunately not true. This assumption sometimes can have a very sad outcome for a grieving family, as the Bankrupts estate still remains vested with the Trustee and can be used to pay off the deceased bankrupts unsecured creditors.
5. "Going bankrupt will blacklist my address"
When someone is made bankrupt a record of this is added to their credit file and will remain so for 6 years. This default on your credit rating however, will have no worse of an impact than missed credit card payments or defaults on loans.
Bankruptcy is attached to a personal credit file and not a property address, therefore, another individual should not be affected by someone else within the household having a bad credit unless they are financially linked to that person e.g. if they have joint loans or joint bank accounts.
If you feel like you need assistance in addressing your current financial situation or some further guidance on the options available to you, contact one of our advisors today.
