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What Happens When You’re Declared Bankrupt?


Shane Filan, Martine McCutcheon, Kerry Katona and now Nick Griffin.... the list of celebrities declared bankrupt goes on and on. But how do you become bankrupt?


A person can be declared bankrupt when they are in so much debt, they can't afford to pay it off. Declaring yourself bankrupt is not a decision to be taken lightly and has a huge impact on your financial future. Before declaring bankruptcy, you should speak to the Citizens Advice Bureau.


After 12 months you are discharged from bankruptcy and are debt free.  


Bankruptcy & Your Credit Rating

Bankruptcy shows on your credit report for six years after you've been declared bankrupt and you're legally obliged to tell any lenders that you've been declared bankrupt if you're applying for further credit over £500. This could make getting credit difficult in the future.


After the six year period, you still may be refused credit because you have been bankrupt in the past. Even if a lender does lend you money, it's likely that the interest rate will be high.


Your Possessions

Once declared bankrupt, you are no longer responsible for your own assets, including money. A trustee will deal with your money and possessions to ensure your creditors get paid. Your possessions such as your home and car will be sold in order to make these repayments.


Items such as expensive furniture, clothing and bedding may be sold and replaced by cheaper alternatives. If you have a family, you will be given 12 months to find alternative accommodation.  


Your Income

Your trustee will also be responsible for repaying your debt using your income. The trustee will decide whether you can make monthly repayments from your spare income. This is called an Income Payments Agreement (IPA) and can last up to three years. If you refuse the IPA the court can order you to co operate.


The trustee will take into account your costs of living such as grocery costs and utility bills before allocating money to debts.  


Your Mortgage

After you've been declared bankrupt, you can still get a mortgage. Be warned though, many lenders will refuse you.


In order to get a mortgage, you must have had your bankruptcy notice removed for six years. You'll need to shop around and your credit history will also be closely checked.  


How To Declare Bankruptcy

To declare bankruptcy, you must first make a petition for bankruptcy. This can be made by you, or is made by creditors. If it is made by creditors and you either disagree or refuse to acknowledge this, the bankruptcy hearings continue in your absence.


You must then give all your financial information to the courts. You may be asked to attend an interview and you will receive a letter detailing what information you will need to provide to the courts.


You will need to list all your assets such as furniture, homes you own, cars or any other items which are worth money. As well as this, you'll need to give information on what amounts of money you owe to whom.  


Costs Involved

Believe it or not but to be declared bankrupt, you must pay a court issue fee of £680. 


What's Not Included In Bankruptcy?

  • Government Student Loans
  • Court Fines
  • Secured Debts


If you're struggling with managing your finances, contact StepChange or the Citizens Advice Bureau for help. Alternatively you may find the below links useful:


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