Over the past year, a significant number of people have felt like they have moved from one financial crisis to another, to the point where it feels like the only way out of severe debt and all that comes with it is to declare bankruptcy.
The process of bankruptcy in the UK is a legal declaration that an individual is unable to pay the debts they are owed, wherein an official receiver will share their assets amongst the creditors they owe and are released from most forms of debt.
Bankruptcy, as well as the similar but legally distinct Debt Relief Order (DRO), are major steps that can alter people’s lives in the short term, but they are not the end of a person’s financial life, nor will they lead to lifelong negative effects.
On the contrary, it can, for many people, be a fresh start and a new beginning. Here are some of the reasons why.
Bankruptcy will shift your financial life in several considerable ways. Your credit score will be seriously affected for many years, making getting a bankruptcy mortgage more difficult (but not impossible), your assets will be seized and additional money from your job may be taken to pay creditors.
Your home can be at risk, but in many cases, a person in the household may have a legal right to stay in the home, your home may have an equity value (value after the remaining mortgage and all other sale costs have been factored in) too low to make it worth selling, or there are other extenuating factors.
You will also keep anything you need to live and work.
During and after the bankruptcy process, creditors will not be allowed to contact you demanding payment without permission, instead communicating with your trustee or the official receiver to get their share of the money.
This typically can provide peace of mind and give you some physical and mental breathing space to decide your next move with many of your debts wiped away.
This means no more calls, no more legal letters and no more bailiffs, with only a small number of debt types affected.
Many people see how long a bankruptcy or DRO stays on your financial record and assume that is how long the direct effects of the bankruptcy last, even thinking that you cannot get any form of finance for six years.
In practice, the restrictions that take hold during bankruptcy only stay in effect for 12 months unless there are extenuating circumstances.
This period is not only fairly short but often is enough to help you plan for your new financial life.
Bankruptcy rules can be complex at times, and the vast majority of the exceptions, restrictions and rules are in place to ensure that regardless of your financial circumstances, your family are not affected.
This means exceptions that enable you to keep a home assuming you keep on top of mortgage repayments, only taking money from a joint account that is yours and only seizing assets that belong to you and you alone.
Your home may be repossessed if you do not keep up with your mortgage repayments.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is £595.
Back to Blog
Create Finance Limited is an appointed representative of Mortgage Advice Bureau (Derby) Limited which is authorised and regulated by the Financial Conduct Authority.
Create Finance Limited. Registered Office: 35 Friar Gate Studios, Ford Street, Derby, Derbyshire, England, DE1 1EE. Registered in England Number: 09582938.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is £595.
The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK. The actual rate available will depend upon your circumstances. Ask for a personalised illustration.
We may receive commission that will vary depending on the lender, product or permissible factors, The nature of any commission model will be confirmed to you before you proceed. Create Finance Ltd are a credit broker, not a lender.