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What Happens After You Declare Bankruptcy?

For many people, their financial situation is somewhat precarious, with a thin line between stability and insolvency, and when circumstance puts them into a position where they are unable to pay their debts, the answer can sometimes involve bankruptcy.

Declaring bankruptcy (1) is where you make a formal announcement via a court order that you can no longer pay your debts, what assets you have are used to pay your creditors, your accounts are frozen and you have certain restrictions that will remain for a year.

This is a major decision and you should seek bankruptcy advice before starting the formal proceedings (2), but whilst the formal process is regularly discussed, as well as the year-long restrictions and long-term effect on a person’s credit rating, the aftermath is not commonly discussed.

There are lots of associated benefits with bankruptcy, such as writing off your unsecured debts and no demands for payment from your creditors, but it’s important to arm yourself with all the necessary information, since bankruptcy also comes with some risks, as well.

Once the dust has settled and the order has been completed, what actually happens after you’ve declared bankruptcy?

Most Debts Will Be Discharged

Most, but not all types (3) of debt are cleared by bankruptcy, so the first feeling most people will get after bankruptcy is relief, as they can no longer be contacted by creditors.

In the imminent aftermath, creditors who have not updated their systems may still call demanding payment. Do not pay them anything, tell them you are bankrupt and inform them that they need to contact the official receiver or trustee. Then let the trustee or official receiver know about the creditor.

You May Not Be Able To Access Your Bank Account

As part of the process, your banking details, accounts and cheque books are handed to an official trustee, who will deal with the distribution of what assets you have to your creditors.

In most cases your bank account is permanently frozen, or cannot be used for quite some time whilst the official receiver handles your finances, although some banks will allow you to keep using an account, especially if it is a joint account and your partner has not been declared bankrupt.

You can apply for a new account, but the bank or building society may ask if you are bankrupt and choose not to open an account. In that case, you can still join a credit union, buy a prepaid debit card or apply for a basic bank account.

As well as this, you cannot secure more than £500 worth of credit ie by taking out a loan without informing the creditor that you have been declared bankrupt.

Beyond the discharge period, your credit rating will be negatively affected by the bankruptcy so it may be difficult to be approved for credit.

You May Have To Sell Your Home

Unless you are in arrears, you are unlikely to be evicted from a rented property as long as you can pay your bills.

However, if you own your home, then the official receiver may want to sell it to pay off debts. They often have three years to try and sell it.

There are exceptions to this, such as if another person has a legal right to the home, if someone buys your share of it at market value, or if the home has such a low equity value that selling it would not be worth anything once the debt and sale costs have been paid.

If you are struggling with debt as a result of the cost of living challenges you can contact the Fresh Start UK team today.






Money Helper has replaced the Money Advice Service and brings together the support and services of three government-backed financial guidance providers: the Money Advice Service, the Pensions Advisory Service and Pension Wise.