July 26, 2023
Declaring bankruptcy requires detailed financial improvisation. It is not an easy decision and not ideal for every circumstance. The legal proceedings require cooperation. A bankrupt person must coordinate with the authority. If considering bankruptcy, hire a qualified attorney to help you elevate your situation.
Initial Proceedings after filing for bankruptcy
Filing for bankruptcy leads to financial ramifications. After filing for the bankruptcy order, the Official receiver asks for the details regarding filing the bankruptcy. Failure to comply with the receiver’s orders may lead to contempt of the court. It may attract the court’s anguish by extending the date of the automatic bankruptcy dismissal to 12 months.
The trustee seizes the assets or the bankrupt’s estate. It includes property belonging to the person, including the property he acquires during the phase.
However, the person can keep essentials like – tools, clothes, beds, furniture, vehicles, books and equipment for living comfortably. He can also keep the tools necessary to carry forward the business or start a new one. You may not have regular earnings or business in these circumstances. Employers may not provide you with one due to existing bankruptcy status.
To meet any critical survival need, check guaranteed loans for the unemployed from direct lenders immediately. It may help you fund important expenses without much difficulty. You can provide a part-time income source as proof. Acquaint the lender of bankruptcy before borrowing a sum. Keep the amount up to £500 as the lender may not lend you over it with the present situation. Struggling through bankruptcy is not easy.
Read ahead to know further consequences that one faces after bankruptcy.
1. What happens after filing for bankruptcy?
Bankruptcy is the only choice when one cannot pay the debts with the existing wealth. Total debts exceed the person’s overall net worth. Either he must pay the dues or declare bankruptcy. If he can pay the dues within some months, he does not need to file for bankruptcy. If it may take more time or re-start the business, he would have to declare bankruptcy.
The official Trustee is responsible for paying creditors from the property and assets sealed. He shares 3 years to clear the dues, sort out the finances and clear every debt. It lies in his power to claim anything in the bankrupt’s ownership. He may sell the home to retrieve the dues or tap other items if it lacks sufficient equity. Here are further consequences of bankruptcy:
1) Sign a three-year agreement to make payments
The Official Reciever looks at your mortgage, rental earnings, income and expenses ( utility bills, credit card payments, mortgage, etc). He may request you to sign a three-year agreement to pay some monthly instalments from your income.
With this initiative, you can pay the total debt in instalments. Keep your Official receiver in the loop about the financial situation. Acquaint with the rise and fall in income. If your circumstances change, the Reciever may set a new payment arrangement.
2) Pension claims
If you have an approved pension, you may keep it. It is known as approved if:
- It is an occupational pension from an employer
- A personal pension
- A stakeholder pension
- A retirement annuity contract
If you lack an approved pension, the Reciever may claim it. Talk it out with your Reciever and reach an agreement. Pension helps manage expenses easily.
After bankruptcy, the person cannot borrow over £500 from any lender for personal or business requirements. Moreover, the person must familiarise the lender with the ongoing bankruptcy status. Otherwise, the authority may take it as unlawful.
3) The bankruptcy goes public
Bankruptcies are public records for investors, creditors and other legal authorities to peek through one’s finance. A business needs to be transparent about circumstances before entering a new alliance. However, most bankruptcies are just a record. Unless it is a famous personality, the news does not get out.
Details of the bankruptcy get recorded in the insolvency Register and may appear in local publications. It is important to list the names of the debtors. It would help the other person decide and decide before beginning a new connection with you. Transparency would not affect you much as hiding things would.
4) Affects the credit score
Bankruptcy remains on your account for at least 6 years from the date of imposition. Timeline may increase if the person fails to coordinate with the authorities. As you cannot borrow much, you would hardly reach out for a loan for the time being. Lenders may perceive you as a “high-risk” client. Your credit score may fall by up to 200 points in bankruptcy.
It implies you may have an average credit score of 600 or below post-bankruptcy. The impact of bankruptcy on credit scores reduces with debt repayment. Lower the debt amount, the higher the credit score.
After 6 years, you can request the credit bureaus to remove the status. It is only possible if you pay the debts in full for the duration. While you may clear debts and get free from bankruptcy before 6 years, the status remains until then.
It would not stop you from taking loans or applying for extra credit cards.
5) Certain debts still remain on the report
You may view bankruptcy as a fresh beginning. Not all debts get removed from the credit report. Moreover, only a few emerge from bankruptcy with zero debt. You may still pay debts like-
- Student loans
- Mortgage (if you still own your home)
- Secured loans
- Maintenance payments, child support payments
- Payments to court
- Magistrate court fines
- Rental arrears
Thus, after getting debt-free from bankruptcy, you would still be liable to pay these debts. You can resume payments after talking it out with your lender. Ensuring financial stability before beginning the payments helps avoid debt arrears.
6) You cannot make an inheritance claim
Under bankruptcy, you are highly unlikely to claim the inheritance legally. It is because anything you claim counts as an asset. It means the Official Reciever owns it legally, not you. It is a part of the bankruptcy estate. Ask the official receiver whether you can claim the inheritance or not.
Similarly, if you have any compensation money or insurance benefits, ask the Reciever before claiming. He will decide whether you can keep the compensation or money from insurance coverage. In most cases, the receiver allows it. It depends on the relation and legal accounts of the person with the Official Reciever.
Alternatively, tell the Reciever if you have already claimed in the application and went bankrupt afterwards. Tell the other authority (inheritance personnel) about your bankruptcy status. It is unlikely that you will receive inheritance money within bankruptcy status. If you have, tell them about it to the Reciever.
7) Affects your utility bill payments and council tax
After bankruptcy, your Official receiver may familiarise everyone involved with your finances about your existing bankruptcy status. The Utility bill receivers may ask you to provide some guarantee to keep receiving the services.
You may provide a security deposit or ask your guarantor to clear the dues. You can avoid getting a guarantor by transferring bills in the name of someone with good credit and no criminal history. You then would not be liable for these payments.
To talk about Council Tax, you do not have to pay it until next April from the date of bankruptcy declaration. If you need financial assistance regarding making continuous payments regarding liabilities, Florafinance can help. It is a legal lender and financial expert in the UK that helps individuals manage finances the best way in bankruptcy.
Bankruptcy leads to the above-listed consequences. Thus, analyse your circumstances before applying for bankruptcy. Sometimes, a person has no other way to resume a new life. But it may affect the lifestyle for a longer time. The best thing would be to work on finances and avoid it. Seek expert help for the right guidance.
Ellie Brown is a proud resident of the UK and love to be a content writer and editor for the last 9 years. Writing blogs and articles is her passion that one can explore at the top blogging platforms. Ellie holds a key position at Florafinance as the Senior Content Editor and Chief Loan Consultant, leading a team of more than 70 professionals. Ellie Brown covers the major aspects of the UK’s lending industry in her blogs and guides loan seekers who come at Florafinance to apply for a loan. She possesses the Post-Graduate degree in Finance and Investment.