Bankruptcy restrictions, or the rules you must follow if you go bankrupt, are few, but they can be how you say….restrictive.
When you go bankrupt, or enter into bankruptcy, you are in essence saying I can no longer handle my finances and the debts I owe, and I need help. That help comes in the form of the courts, the law of the land, it enters into matters on your behalf and helps you.
That help or aid has a price, and that price is your credit and also your personal finances.
You need to report your income an expenses to the Insolvency Practitioner or Official Receiver who is handling your bankruptcy, and they then handle your finances and money. Not on a day-to-day basis, but they review your assets and income to see if you have anything that can be paid to your creditors.
What you receive in return is financial freedom, no collection calls and a new start.
Once you file for bankruptcy, your creditors can no longer contact you, or make collection efforts. And after a period of 12 months, your bankruptcy is discharged, and you no longer owe the debts.
If you do show a surplus of income to pay into a bankruptcy after your allowed expenses, you could be required to pay into the bankruptcy for a period of three (3) years. We will explore this more later.
So for 12 months you are bankrupt, in bankruptcy, and under the restrictions of being bankrupt.
But what are those restrictions?
First let’s look at your credit while bankrupt.
How Bankruptcy Affects Your Credit
Your credit report, or credit history, has to be an accurate picture of what accounts you have or have had, and also how you pay them.
There also is a section for public records that relates to your credit, this is for items such as CCJ’s and also Bankruptcy.
Everything on your credit report stays on it for a period of six (6) years, and then is to be removed. Bankruptcy is the same, it stays on your credit history for 6 years. Which means after the 12 month period you are bankrupt, the bankruptcy stays an additional five (5) years on your credit file.
Does this mean that for the 6 years a bankruptcy is showing on your credit file that you will not be able to get credit, no, but getting credit can prove difficult.
You may need a larger deposit to let a property, you may need a guarantor for some loans, and any initial credit card offers may be a low credit limit.
During the 12 months you are bankrupt you are under various restrictions, one of these is to cooperate with the OR/Official Receiver in providing any details or information they request. This includes any updates or changes to your income or expenses during the 12 months.
Should you fail to cooperate with the OR, you could be issued a BRO or Bankruptcy Restriction Order. This order keeps you under the restrictions of bankruptcy longer than 12 months, can be for as long as 15 years.
These restrictions include:
- You cannot borrow more than £500 while bankrupt without informing the lender you are currently bankrupt. You also may require the permission of the Official Receiver.
- You cannot be a Director of a company with the court’s permission.
- You cannot manage, create, or promote a company without the court’s permission.
- You cannot create and manage a new company under a different name, without informing those you may do business with that you are bankrupt.
- There are some jobs in which being bankrupt could cause you to be dismissed, or not hired.
- You cannot buy a property under the “right-to-buy” scheme.
- Some powers of attorney you hold may be revoked.
As you can see, going bankrupt is a serious process, and one that you need professional advice prior to deciding if it is right for you.