The truth about bankruptcy
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You don’t have to pay a CCJ debt if you go bankrupt. Learn why here.
The decision to go bankrupt is a big one. It will have both negative and positive effects on your life, however, in the right circumstances, it can be the best thing to do if you have unmanageable, unsecured debts.
But what about if you already have a County Court Judgment (CCJ)? Are you still allowed to go bankrupt and will you have to pay the CCJ? Let’s have a look at what happens with debts that have reached this stage.
Can I include a CCJ in bankruptcy?
Bankruptcy includes all your unsecured debts, including CCJs. So a CCJ can be included in your bankruptcy and you won’t have to continue paying it as you originally were told to, if you go bankrupt. In fact, you have to stop paying towards any CCJ and other unsecured debts if you go bankrupt.
Having said that, going bankrupt doesn’t mean that you won’t have to pay anything towards your debts. Your Trustee – who oversees your bankruptcy – will look at your finances and tell you whether you need to pay a monthly amount towards your debts or not.
This monthly amount is called an Income Payment Agreement (IPA) and, it normally lasts for three years. If you do have to pay this every month your Trustee will make sure that it’s affordable for you and that you can still manage all your other essential costs.
Am I protected from legal action by bankruptcy?
Yes, you are protected from further legal action. Bankruptcy protects you from other lenders trying to get another CCJ against you, and stops any CCJs you already have from being taken further.
Normally, if you have a CCJ that you don’t pay, the creditor can choose to take it further by applying for permission to take money straight from your wages or benefits. In some cases, they can apply to the court to have bailiffs sent round to your home to seize items that can be sold so they can recover part of the money that way. The legal protection that bankruptcy provides will stop this from happening.
What if I’ve got a Charging Order or I’m waiting to go bankrupt?
If your CCJ has already been taken further and a Charging Order has been made against you, this means the debt is now secured against your property. If you didn’t pay this, then your property would be at risk and because the debt is now secured, it cannot be included in the bankruptcy.
You also need to bear in mind that if you have a CCJ and you’re saving up to go bankrupt, you will be at risk of further action during this time. Just because you’re saving up and intending to go bankrupt, it does not mean that you have any legal protection and your creditors can still take action. The protection from further action only begins once you actually go bankrupt.
The downsides of bankruptcy
The protection that bankruptcy provides will definitely provide a sense of peace of mind and relief, if you’ve been facing the prospect of legal action from your unsecured lenders for a while. But, there are some downsides to bankruptcy that you need to be fully aware of before you go ahead with a solution like this.
First of all, there is a cost to going bankrupt. It costs £680 in full to go bankrupt in England and Wales. This is split between a £130 fee to the adjudicator, and a £550 fee to the Official Receiver. Our previous blog on the cost of bankruptcy will explain more, as well as how to apply for help with these fees.
Bankruptcy will also have a negative effect on your credit history as the solution will show on your credit file for six years from the date that you start it. This means that you might be less likely to be approved for credit, as prospective lenders can see that you’ve had problems with repaying debts in the past. If you are approved, there’s a chance you’ll have to pay a higher rate of interest.
In some cases bankruptcy can mean you have to sell your house, if there’s any equity in it.
If you abide by the bankruptcy rules, then after a year you will be discharged. The rest of your unsecured debts will be written off, including any CCJs that were included in the agreement. This means that you won’t have to pay those debts and your creditors aren’t allowed to chase you for the outstanding amounts.
Do I have to go bankrupt if I have a CCJ?
Bankruptcy is not the only option if you have a CCJ. There are other solutions available and which one is right for you depends on your particular situation. An Individual Voluntary Arrangement (IVA) is another solution that helps people who are insolvent (people who are unable to pay their debts when they are due, or have assets worth less than their debts.) With this solution, you have to pay something towards your debts each month, but you won’t have to sell your house as you might have to with bankruptcy.
There is also something called a Debt Relief Order (DRO). You don’t have to pay anything towards your debts with this solution – in fact you’re only allowed this solution if you can’t afford to put anything towards your debts at all. It lasts 12 months and after it’s over, if your situation has not improved, the rest of your debts are written off. When it comes to DROs, the qualifying criteria is quite strict, make sure you check out our previous blog covering this topic.
If you want to find out more about which solution is the one for you, get in touch with a trained debt advisor like the ones at Debt Advisory Centre. You can use the options at the bottom of the page to get in touch with one of them. There are sometimes fees involved with certain solutions once they’re up and running, but the initial advice they give is always free of charge, and then you can decide how you move forward from there.
Make sure you get the help you need if you have a CCJ you can’t afford to pay, or your debts are starting to become unmanageable.
by Christine WalshBack to blog home