Bankruptcy - The aftermath

Discussion in 'Finance, Property, Law' started by skintboymike, May 20, 2007.

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  1. Someone who I've known pretty much my whole life has recently let slip to me that she is in a world of poo with debt. A few years ago her boyfriend took out loads of credit cards in her name, maxed them out, and left her. He also left her with a little girl to bring up. Anyway, apparantly she's in debt to the tune of about 20 grand. She's consolidated this into a loan from her bank, but still has no way of paying this debt off within the next 10-15 years. She has a little part time job in a shop which, as you can imagine, pays next to nothing, so her last few years have been spent scrimping, saving and worrying. A lot. She now has a new boyfriend who has a steady (but small) income, but she's refusing to let him help as it's her debt and not his.
    It has been mentioned to her that many people these days go down the route of applying for insolvency, and it was probably something worth looking into. She's rather ill-informed with matters like this, and has been led to believe that bankrupty is pretty much the end of your life as you know it. I can imagine that getting a loan would be a lot harder after doing this, but if the slate's wiped clean I can't imagine she'd be in any hurry to get in debt again, once bitten twice shy and all that.

    I wondered if anyone here had any first hand information on how your life is affected by declaring yourself bankrupt, for better or worse.
  2. Have a look here
  3. Both people I know well that have gone bankrupt reckon its the best thing they have ever done. Instant relief of the problem.
    No creditors chasing you etc, if you dont feel the need to borrow money in the near future then its the easiest thing to do.
  4. I had a look on Google and found similar sites. I am aware that there will always be small print involved, and was wondering if anyone had personally encountered any serious problems which these agencies don't tell you.

    edited to add - thanks for looking btw.
  5. Before actually applying for bankrupcy, go and see a debt councillor, perhaps via the CAB, to see if there are any alternatives. Bankrupcy is the "instant sunshine" approach to debt and definately not suitable for everyone. If you are a secured tenent with a regular low income from employment and no need for credit in 2-5 years, it may well be the best option.

    As a minimum you will have someone looking over your shoulder until you are discharged, they will force a sale of any assets you hold in your own name, they will remove as much of your ongoing income as they can and they will govern how, when and where you do any financial transactions. Forget any credit for 2-5 years and when you can get it, it will be expensive. If you are not in secure rented accomodation when you start the process you will find it hard to get it once bankrupt, landlords don't like to rent to bankrupts. As a bankrupt, you cannot be a company director or a charity trustee and you will need permission to do various things.

    Once discharged, life will return to normal within 5 years and your ability to get credit will return to normal rates. You will have to follow up all of the court papers to ensure that you are discharged properly and check your credit file with the usual agencies once discharged.

    Some cities have a money advice centre, (I am very familiar with Leicester's, my wife is on the management committee), all of these centres will work for free - so don't pay a debt company to "manage" your debt as it will cost you for years to come. Beware of the companies offering an IVA as the solution to all your problems as well - you will see, if you read the IVA agreement carefully, they get paid first before your creditors!

    As for using a bank loan to consolidate debt, this is not a good idea unless you know you can pay it off in a reasonable period - the only people who benefit is the bank. (As the ex-boy friend committed a fraud, it might have been easier to deal with that at the time, but I appreciate that hindsight is always 20:20).
  6. If her ex took them out in her name without her knowledge then shes got grounds to report him for fraud or something – maybe she could threaten her ex with this and get him to sign an agreement to repayments.

    As for declaring bankruptcy. That’s a tough one. She may find it extremely difficult getting a mortgage, loan, credit card in the future. I’m sure a ‘black mark’ will be held against her name, even renting could pose a problem.

    BUT if she has no intention of buying a house, car etc by credit in the future then I cant see any detrimental reasons to not heading down that route.
  7. The description you give is of a lady who is right at the bottom of the pile, without any assets and unable to make any headway. In which case, I suggest that being made bankrupt might be the best thing that she could do.

    Excellent advice from the other contributors: go after the ex, visit the CAB, don't use IVAs unless there is no alternative. Check that her job will not be affected by bankruptcy (frying pan and fire springs to mind....). But she has to understand that she could lose any assets she might have built up, and for 3 years, her income will not be hers alone! Equally, the fact that she is bankrupt might open up the opportunity to apply for social housing etc.