Member Article

Dispelling the common misconceptions of bankruptcy

Bankruptcy is a procedure that often dominates the news, and can be particularly daunting for anyone facing cash flow issues. There are a huge number of myths surrounding the procedure, with many believing their credit score will never recover. While there are, of course, certain complexities with the procedure, it is not all doom and gloom.

Business Rescue Expert - leading insolvency practitioners - are dispelling the myths for anyone facing the early signs of bankruptcy.

#1 You will lose every asset

Many believe that filing for bankruptcy means losing all assets, but that is not the case. When you do file for the procedure, your assets and property become part of the ‘bankrupt’s estate’. The trustee will take account of your assets and freeze your bank accounts, but you will certainly not be left without your possessions or with access to money for essential household items.

For example, if you have a vehicle that you use for your trade, you will, likely, be able to keep it for work. As, if you can’t work, you can’t repay your debts and, therefore, your creditors. It is also possible to keep your home during bankruptcy, but you will have to speak to the trustee regarding your property.

#2 You can hide your assets

You cannot hide your assets. If, at any point during the procedure, you hide assets and the trustee discovers this, they can suspend your bankruptcy order indefinitely - meaning there is no end to the bankruptcy in near sight.

#3 You will lose your car

As mentioned above, this is not always the case for work purposes etc. However, you must prove that you use the vehicle for work and other essential purposes. If the car is leased, you may be forced to exchange or relinquish the car if not needed. For instance, a high-value car for travel is not necessary if a smaller hatchback can do the job.

#4 Everyone will know

When you file for bankruptcy, a notice will be placed in The Gazette with your information also filed publicly on the Insolvency Register. What this means, however, is for the benefit of your creditors and not your next door neighbour. It’s highly unlikely that everyone will find out unless, of course, you are a well regarded figure and news may spread fast.

#5 You can’t work

Again, this is another common myth - one that is certainly not in the best interests of the creditors, as they want you to pay back your debts. There are, however, exceptions for those working as directors, and you will need an exemption from court if you hold this title. Bankruptcy may also affect those who work in the finance sector as some companies may have clauses in their contract for such individuals handling accounts etc., so it’s worth checking before filing for the petition.

#6 Creditors cannot make me bankrupt

Creditors can certainly petition for bankruptcy and it’s highly likely they will if you owe them £5,000 or more. Generally, they will send a statutory demand for payment initially, and it’s in your best interest to meet their requirements.

#7 Bankruptcy will last a long time

Bankruptcy, typically, lasts no more than 12 months. The bankruptcy will be placed on your credit report for a period of six years after completion. However, it’s possible that a bankruptcy restriction order is placed against you if you do not meet the terms of your bankruptcy, which can last indefinitely.

#8 I will be discharged if I don’t pay

You will not be discharged from bankruptcy if you don’t pay. Your trustee, however, will likely suspend the automatic discharge after 12 months to keep you under the procedure until you make the repayments.

#9 My future will be ruined

Bankruptcy will certainly not ruin your future. While it may disrupt your life in the short term and affect your ability to gain and build credit for six years, there is light at the end of the tunnel. If you are worried, there are many lenders that will provide credit for those with bankruptcy petitions against them - you just need to do your research.

This was posted in Bdaily's Members' News section by Robbie Thompson .