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Some important things you’ll need to know about bankruptcy
Declaring yourself bankrupt or being declared bankrupt can be a stressful time and so some of the important questions you may want to ask can get forgotten about, such as what about my council tax and how could this affect my car insurance policy.
As a result, we have put together some information which should help you to answer any questions you may have regarding day to day bills, tax implications and more.
How will bankruptcy affect any insurance policies I have?
Insurance policies, such as your car insurance policy, are seen as a short term debt if you are paying back in monthly instalments. This is because the policy is already paid for in advance by the insurance company and you pay them back what you owe over the course of the next 12 months.
It is always important to check your policies as some contracts include conditions surrounding bankruptcy which could affect your cover. In some cases, bankruptcy can cancel the insurance policy immediately which is more likely to happen if you pay in monthly instalments and in other situations, you may be given a short amount of time to pay off the rest of the instalments for the year otherwise cover will be cancelled.
Before applying for bankruptcy or after you have receive a bankruptcy petition, check your insurance contracts to check your insurer’s stance and get in touch with your insurer for any further information.
Would becoming bankrupt affect my pension?
Pensions are “protected” in bankruptcy so in most cases, the official receiver (OR) dealing with your bankruptcy will not take your pensions savings into account. In this respect, pensions differ from other savings, shares and investments which are usually taken from you when you go bankrupt.
This is a complex area, so the way to find out if your pension will be affected by your bankruptcy is to get in touch with an Independent Financial Advisor or your pension provider(s) to inform them of your current financial situation.
Can I keep my bank account in bankruptcy?
It is likely that you will be able to still have a bank account but it will a basic bank account with no overdraft. Your bank account is also likely to be frozen for 2-7 days immediately after you apply for bankruptcy when the OR is dealing with your case, they do this to check your transaction history for any errors or irregularities.
Not all banks accept those who are in bankruptcy so your options may be limited. As a result, if you currently bank with a banking provider who does not accept those in bankruptcy then your account is likely to be shut down and you will have to find a new banking provider.
If you have any questions regarding your bank account in bankruptcy then get in touch with your current banking provider to discuss your situation.
You should tell the OR if you have a monthly contract for your mobile phone and you are paying the money against the handset. This is because this is seen as a credit agreement where you are paying off the phone a little each month.
When filling out the forms with the OR you should declare the handset payment and add costs for calls and messages to your outgoings. On most occasions, if you are keeping up payments then your phone contract can be kept out of bankruptcy however if you are behind with payments then it will be added to your bankruptcy and it will be up to your phone provider what happens next.
When it comes to applying for a new contract in bankruptcy, there is a limit on the amount of credit you can apply for so it can be difficult to obtain a good deal. Another option is to buy a phone and set up pay as you go which does not require a credit check.
For any further information on this, get in touch with your mobile phone provider.
What about my council tax?
Any council tax debts are included in a bankruptcy regardless of whether the council has issued a summons for them. If you live with someone else who is liable to pay council tax then they will become liable for the council tax as this form of tax is a joint and several liability.
Once you enter into bankruptcy, whether you owed money or not, you are no longer required to pay for the current financial year. This will increase the surplus income of the person in bankruptcy which can be put towards the income payments agreement (IPA) which has been set to pay fixed monthly instalments from your income for three years. The IPA is likely to reduce at the end of the tax year when next year’s council tax is due to be paid.
For any further information about council tax and bankruptcy, get in touch with your local council.
What are the restrictions in bankruptcy?
When you are in bankruptcy, there will be a number of restrictions placed upon you including:
- Being unable to buy a house under the ‘right to buy’ scheme.
- Borrowing more than £500 without telling the lender that you are bankrupt
- Being unable to do some jobs including insolvency practitioner, charity trustee or consumer credit licence holder
- Running or being director of a limited company without the permission of the court
- With regards to self-employment, using a business name which is different to the one you used pre-bankruptcy unless you inform those you do business with about the bankruptcy
- Co-operating with the OR at all times including providing them with all information and documents they require
- Helping a vulnerable person to manage their property and affairs using a lasting power of attorney as this will be cancelled.
These restrictions will remain in place until you are discharged from bankruptcy, which is usually after 12 months, however this can last up to 15 years if you are found to have committed fraud or hidden assets. If you do break any of these restrictions, the OR are likely to investigate and decide on whether to lengthen your bankruptcy.
To find out more about bankruptcy and the effects it will have on you, visit our dedicated webpage, Stepchange and their series of articles about the subject or the Gov.UK website.
If you are struggling with problem debts, get in touch with us on 0800 901 2488. Our friendly, professional advisers will be able to offer you the advice you need to help you deal with your current financial situation.