What are the effects of going bankrupt?

Firstly, before looking at what are the effects of going bankrupt we will briefly explain what bankruptcy is. Quite simply, if you are unable to repay your liabilities within a reasonable period of time then you can apply to the court to be made bankrupt or one of your creditors can request that the court make you bankrupt. 

So, what are the effects of going bankrupt? On the positive side it means that, after one year, your debts are written off. Therefore, you will no longer have to worry about trying to find the money each month to cover the repayments on your loans or meet the minimum payments on your credit cards. The stress that you may have been under may have reduced to a manageable level as you will no longer have to deal with phone calls and letters from your creditors nor worry if that knock on the front door is from a bailiff. It gives you the opportunity to start again as far as your finances are concerned albeit, as you shall shortly read, on a reduced scale. 

Unfortunately, there are a number of negative factors when you go bankrupt so let's have a look at some of them. If you own a house, it will be sold to reduce or clear your liabilities. Therefore, you will have to find somewhere else for your family to live and this will usually mean renting as it is unlikely you could get another mortgage for many years. To compound matters, because your credit rating will be adversely affected when you go bankrupt you may struggle to rent privately and have to live in local housing accommodation. 

Other impacts of a poor credit rating are that you will only be allowed to operate a "basic" bank account that does not provide a cheque book, overdraft facility and may not provide a debit card but instead comes with a cash card that may not be as widely accepted. For instance, some cash cards cannot be used to get cash out of "hole in the wall machines" abroad.  

You may even struggle to upgrade your mobile phone. During that period of twelve months when your finances are controlled by the official receiver, you will not be allowed to apply for loans, credit cards or even buy a TV on hire purchase. 

Therefore, if you had been allowed to retain your car you are likely to have to hold onto it for quite some time until you are discharged from bankruptcy and your credit rating improves- the days of changing your car every two years are over for some time. You could be watching the same TV screen for a few more years. If finance can be obtained you will probably pay a much higher rate of interest. 

 Deciding to go bankrupt is not a decision to be taken lightly but in many cases it is a sensible option to give you a fresh start. At Choice Loans we work with Debt management specialists and bankruptcy practitioners that can offer you no-obligation advice to help you determine what is best for you. If you'd like to speak confidentially then call us on 01494 410125.