A while ago I was contacted by a SavvyWoman user, I’ll call her ‘Helen’, who had voluntarily declared herself bankrupt a few years earlier. She was keen to pass on some tips that she’d learned from the experience. Find out what does going bankrupt involve.
What does going bankrupt involve?
Going bankrupt is never easy but, if you have an idea of what to expect, at least you can start to work out whether it’s right for you. Here is what Helen learned about bankruptcy, in her own words:
Preparation and planning: before you file for bankruptcy
Have a brief period of coming to terms with your financial position – the dawning realisation that things are not going to improve. Deal with the emotions surrounding your massive debt; feelings of guilt, shame, overwhelming feelings of responsibility.
- Get help to manage these feelings. There are many voluntary organisations that run help lines where you can talk in confidence.
- Get access to counselling services via your GP.
SAVVY TIP: This tip is from the debt advice charity StepChange: Talk to one of the free advice services so that you are fully aware of the option that you may have. They will also give you all the information about bankruptcy that you may need.
- Sit down with appropriate close family members and take the decision coolly, calmly and with all the relevant information and in full possession of the facts. Discuss all the options available. There are web sites and forums that you might find helpful.
SAVVY TIP: As well as StepChange, Citizens Advice and National Debtline (all charities that give debt and bankruptcy advice), there is also a website called Talkaboutdebt, which lets you compare different free providers of debt advice.
- Write down all your debts and financial commitments. You may have underestimated or overestimated the scale of your debt problem. You will need current bank and creditor statements to complete the forms to file for bankruptcy. You do not have to disclose to friends, family or employer. Just think about who needs to know and why.
SAVVY TIP: StepChange says: your employer will be advised of changes in your tax coding because of your bankruptcy. Do check that this will not affect your employment.
- You can draw cash from a credit card to pay for your bankruptcy application.
SAVVY TIP: StepChange says that any late use of credit cards and overdrafts will have to be explained to the Official Receiver.
- Be prepared for all your accounts to be frozen. Once you declare you are going to file for bankruptcy and in any case as soon as you have done so, all access to your accounts will freeze with immediate effect. You won’t be able to access anything — cash, cheques, credit cards.
SAVVY TIP: StepChange says: you can open a new bank account as soon as you have been declared bankrupt providing you advise the bank. Several banks have this service and will not offer any credit but will allow you a cash card.
- Get your car serviced, particularly if it’s overdue. If you have a car, you will need it to be reliable.
SAVVY TIP StepChange says: you will be allowed car expenses on your budget when you go bankrupt but if you think that your car is going to need more expense in the next year consider this before you go bankrupt.
- Get a valuation for your car and any other assets in writing. This is the information the Official Receiver will use to decide whether you can keep them, or if they have to be sold.
The filing and the hearing
The court appearance for a bankruptcy hearing is all over very quickly.
SAVVY TIP: StepChange says: that the hearing is held in your local county court. Your appointment will probably be before the start of the morning or afternoon court session.
- Make sure you arrive in good time. You need to phone the office of the County Court to book the hearing date. County court office staff will just check over your figures on the form and ask you to swear an affidavit that the information that you are submitting is true before it goes to the judge.
- Dress smartly, as if it’s a day at the office. It’s a great confidence booster at a really emotional and stressful time. Hold you head high, however you are feeling inside. You have taken a bold and necessary step. The process of your forms going before the judge is all over very quickly, in a matter of minutes. There is a strong probability that you will not be asked to appear before the judge.
SAVVY TIP: StepChange says: It is the judge’s job to make sure that you fully understand what you are doing and that you have taken proper advice.
Working with the Official Receiver
The Official Receiver is the person appointed to oversee your bankruptcy.
- Be completely honest with your appointed Official Receiver. They are generally helpful but you should expect to provide them with all information and data they require. Do not mess about with them. Treat them with respect. Respond quickly to their requests.
- Set aside time every day. Use this to deal with the incoming correspondence which you have to forward to the Official Receiver by post. This can actually help shorten the period you are in the state of being an undischarged bankrupt.
- You may only speak to the Official Receiver on the telephone but in some cases it may be necessary to meet him or her in his/her offices. This is not unusual so don’t worry about it, just make sure that you have all the documentation that has been requested.
The immediate aftermath
After your bankruptcy, you will receive incoming calls and demands for money from creditors — people to whom you owe money. The Official Receiver’s office is very busy and it sometimes takes some time for your creditors to be advised of your bankruptcy. Be strong and clear. Just give them information about your bankruptcy hearing, the number, the county court and the date. Tell them who your Official Receiver is, if they ask. Then end the call.
- Learn that cash is your friend. During the bankruptcy period and for a considerable time afterwards you may wish to work on a largely ‘cash only’ basis.
SAVVY TIP: StepChange says: learning to work without credit will be a useful exercise for future budgeting.
- Get a pre-paid credit card which provides a credit card lifeline, with all the usual benefits and advantages of cover for purchases. Once you have made the 12 repayments, they advise the credit reference agencies Crediva, Equifax, Experian, and TransUnion that you have satisfactorily completed a loan agreement. This builds your credit rating.
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