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Today we're looking at six of the most commonly Googled questions about bankruptcy - and their answers. Read on to sort fact from fiction.
The word ‘bankruptcy’ can sound very serious. And there’s no doubt that it’s a big decision – but for some people it will be a suitable way for them to deal with a serious debt problem. But how much do you actually know about how bankruptcy could help you deal with your debts?
#1 Does bankruptcy clear council tax debt?
If you go bankrupt, most kinds of debts are written off when you are “discharged”, usually after a year. This includes council tax debts from previous years. However, it’s important to note two things:
- This doesn’t usually include your council tax liability for the current year. (It gets a bit more complicated if you have an Income Payment Agreement, which means you have to pay into your bankruptcy. You can find more details on this here.) In other words, going bankrupt doesn’t mean you can ignore your council tax bills!
- If you live with another adult who is also liable to pay council tax, you’re usually ‘jointly and severally liable’ for the tax. That means that if you go bankrupt (or enter an IVA or a Debt Relief Order), the council will pursue the other liable person for the debt instead. (See #5 for more about joint debts.)
#2 How will bankruptcy affect me if I want to buy a house in the future?
Bankruptcy will appear on your credit report for six years from the start date of the bankruptcy. It’s unlikely you’ll be able to get a mortgage during that time. Even after this period has elapsed, you may still be asked about your history of insolvency on a mortgage application. Some, but not all, lenders will refuse you a mortgage if you’ve ever been bankrupt. So it’s not the case that you’ll never be able to buy a house having gone bankrupt - but it’s undeniably more difficult than it would be otherwise.
#3 Is bankruptcy public record?
Bankruptcies, IVAs and other formal insolvency solutions are listed online by the Insolvency Service. So whilst they are public, it’s unlikely that anyone you know will see this information unless they go looking for it. Bankruptcy used to be advertised in local newspapers, but nowadays this very rarely happens.
#4 Will bankruptcy affect my employment?
In some professions - such as law and accountancy - your employer will need to know if you become bankrupt. And there are some jobs you won’t be able to do until your bankruptcy is discharged. Otherwise, your employer will not need to know. Check your employment contract to find out if your job would be affected by bankruptcy or another insolvency solution.
If you’re involved in running a business, bankruptcy will have a significant impact on you. In this case it’s especially important to get expert advice.
#5 How will my bankruptcy affect my spouse?
There are a few main ways in which your bankruptcy could affect your spouse or partner:
Your home and assets
If you own your home, then you may have to sell it, which will of course affect both of you. You will usually be able to keep all your other possessions unless they’re worth over a certain value.
If you and your partner are jointly responsible for debts, your partner will become solely liable for them if you go bankrupt - if this is the case they should seek debt advice themselves.
Your bankruptcy won’t have any impact on your partner’s credit history unless you’re financially linked, ie by joint accounts or if your partner has ever acted as a guarantor for you.
#6 Is bankruptcy the same as insolvency?
‘Insolvency’ simply means that you’re unable to pay back the debts you owe, or at least at the same rate at which you originally agreed to pay them back. Bankruptcy and other formal insolvency procedures are routes out of insolvency.
Bankruptcy is one of a few different solutions to insolvency. In England, Wales and Northern Ireland, the others are Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs). Scotland has its own insolvency solutions, including sequestration, Trust Deeds and the Minimal Assets Process (MAP).
These solutions are all quite different. Whether any of them are right for you depends on your circumstances: the amount of debt you have, whether you have any income to pay towards your debts, and of course in which country of the UK you live. Click the links above to find out more about each one.
We hope this has answered some of your questions about bankruptcy, its implications, and your other options for getting out of debt. To find out more, visit the bankruptcy section of our website.
by Christine WalshBack to blog home