New figure from the Insolvency Service indicate record levels of insolvency for 2009.
The stigma surrounding bankruptcy relies heavily on various untruths that scare consumers into choosing often ill-suited debt solutions. Because of this, people who would in fact benefit from the protection of bankruptcy often dismiss the idea without first looking at all the facts. Here are a few of the myths surrounding bankruptcy.
Myth 1.
" When you go bankrupt, the bailiffs come and take absolutely everything that you own."
This is a complete untruth. You enter the protection of a bankruptcy order to protect yourself from creditors, which allows you to make a fresh start. Under Section 283(2) of the 2002 Insolvency Act, you are allowed to keep the tools of your trade up to the value of £1,000, all of your clothing, bedding, furniture and all household goods. You can keep your car providing it is under the value of £2,500, and if they were to take it, they would be obliged to replace it with another, less expensive vehicle - particularly if a vehicle is required for your profession. For more information see Assets Explained.
Myth 2.
"An IVA is always a better option than bankruptcy".
Again, untrue. Unless you are protecting assets or equity such as a business or property, in many cases bankruptcy is a better debt solution. The ‘worst case scenario' that can occur when filing for bankruptcy is that you will be ordered to pay an Income Payment Order (IPO) for a period of 3 years. If an IPO is served, this would only be 50-70% of your disposable income after living expenses have been accounted for - less than an IVA and for a considerably shorter period of time. An IPO can usually be avoided with a correctly prepared income/expenditure account.
Myth 3.
"Bankruptcy lasts for many years."
The period for bankruptcy used to be 3 years - even then much shorter than an IVA - but has since been changed to a period of one year. As well as helping creditors regain some of their losses, bankruptcy is also there to help debtors rebuild their lives, and as such, many bankrupts can be discharged from their bankruptcy in as little as 3 months - providing you have fully co-operated with the Official Receiver (the average period for discharge is seven months). In addition, bankruptcy will only stay on your credit file for six years - the same period as for an IVA.
Myth 4.
"Bankruptcy will ruin your financial status - for life."
As previously stated - bankruptcy will remain on your credit file for a total of 6 years, not for life as is often claimed. It is also worth noting that an IVA stays on your file for exactly the same period of time. The misconception of being ‘blacklisted for life' is totally unfounded, as once you have been discharged from bankruptcy you will be judged like everyone else in applications for credit - based on your recent performance in monetary matters following your discharge. After a period of behaving responsibly with money and proving that you are capable of managing your finances correctly, you will then be able to apply for credit accordingly. In fact, there are banking companies and lenders who specialise in catering for former bankrupts by allowing them to re-build their credit profile. For more information see 1Stop Restart .
Myth 5.
"When you go bankrupt you can't have a bank account or mobile phone contract."
Although it is true that your account will have to be closed if you owe money in overdraft or credit fees, but otherwise most banks will continue to offer an account - without an overdraft facility. Similarly, there are special mobile phone packages available for bankrupts, so you do not have to feel like your comforts and necessities are being stripped away. For more information see 1Stop Restart.
For more information on filing for bankruptcy or other debt solutions, please click on the relevant links below.
Will bankruptcy remove ALL of my debts?
Being discharged from bankruptcy
Trust Deeds (Scottish Residents Only)
To discuss bankruptcy or any other debt solutions, please call 1Stop Money on 0800 012 4039 or fill in the online form and a 1Stop Money broker will contact you as soon as possible.
1Stop Money - your first stop for finding the debt solution you need.