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Why is bankruptcy such a scary word?
Bankruptcy. For many, it’s a word with pretty negative connotations. But do you know exactly what it entails and how it can help people in debt? In this blog we’re going to shed some light on what bankruptcy is and when it might actually be a positive step towards getting back on track financially.
What is bankruptcy?
Bankruptcy is a formal debt solution to help people who are insolvent. Insolvency means you’re not able to pay your debts when you said you would, or that your debts are worth more than your assets.
Bankruptcy lasts for a year and during that time, your repayments towards your unsecured debts are lowered to an affordable amount or stopped altogether, if the Trustee (the person in charge of your finances in bankruptcy) can see that you can’t afford to pay anything each month.
Once the year is up, as long as you have stuck to all the bankruptcy rules, any debt leftover is written off completely, along with interest and charges. So in the right circumstances, bankruptcy can put you back in a position where you can afford your essential outgoings and write off your debts, providing you with a financial fresh start.
Why the negativity?
It’s important to understand that going bankrupt will have an effect on your life and it’s not a decision to be taken lightly. Your assets are at risk with bankruptcy and it will have a negative effect on your credit rating. Having said that, a lot of the fear surrounding bankruptcy comes from the myths that people have heard – let’s explore a few.
Myth one: bankruptcy lasts forever
This isn’t true. Bankruptcy itself only lasts for a year. It will show on your credit history for six years but it is possible to rebuild your credit history back up again.
Myth two: I’ll lose everything
You won’t lose everything if you go bankrupt. You’re allowed to keep essential household items and items that are necessary for your work. You may have to sell your home and put the money towards your debts, if you’re a homeowner and have more than £1,000 in equity.
Myth three: Everyone will know
It’s very unlikely that everyone will find out if you go bankrupt. There is something called The Insolvency Register, which records anyone who starts a solution to deal with insolvency and this is publicly available. However it’s mainly used by the people overseeing your bankruptcy or by creditors and credit reference agencies. Someone would have to search for you to begin with and once your bankruptcy has been over for three months, your details are taken off the register altogether.
Hopefully, we’ve cleared up some misconceptions about bankruptcy and how it works. If you want to know whether bankruptcy is the right thing for you, be sure to get in touch with one of our expert advisors using the options at the top of the page.
by Christine WalshBack to blog home