The top bankruptcy myths answered

We consider some of the key myths that surround declaring yourself bankrupt and find out whether there is any truth in them.

Strange as it may sound, declaring yourself bankrupt could be one of the best ways to get out of debt that you simply cannot repay.

Once you are bankrupt all of your unsecured debts will be taken away from you. You will no longer have to worry about them and in many circumstances they will be written off.

However, despite the advantages that declaring yourself bankrupt might bring, it is natural to be worried about what affect it will have on you and your family. We consider some of these worries and find out what really happens.

If I go bankrupt I will always lose my house

If your own your own home, one of the key worries that you will have about bankruptcy is that you will lose the roof over your head.

The reality of bankruptcy is however very different to this. Your house will not be automatically sold from underneath you.

The important thing to understand is that your house is only at risk in bankruptcy if you have significant equity in it. Then the official receiver has a duty to your creditors to try and realise this equity which could result in a forced sale.

But if you have little or no equity in your property it is likely that you will keep your home even after you are discharged from your bankruptcy.

Bankruptcy means I will lose all of my goods and possessions

This is one of the great myths of bankruptcy. In reality you will be able to keep all of your household goods including electrical equipment and computers.

The only time when any of your household goods may be at risk is if they are particularly valuable items which you do not strictly need to keep.

For example if you own any valuable antiques you may have to sell these.

One area that is important to get a little more bankruptcy help is your car. The standard bankruptcy procedures mean that you are allowed to have a car if you need one. However its value should not be greater than £2000.

If your car is worth more than £2000 after declaring yourself bankrupt you may have to sell it and get a cheaper one or sell it altogether if you do not need it.


In bankruptcy will not be able to have a bank account

Many people worry that when they are bankrupt they will no longer be in control of their money or be able to have a bank account. This idea is completely incorrect.

After declaring yourself bankrupt you are one hundred percent responsible for managing your money day to day. You will receive your wages and other income as normal and must continue to pay your ongoing living expenses.

In order to do this you need a bank account and you are certainly allowed to have one.

The problem that you may come up against is that you might be required to change your bank account.

Not all of the high street banks will allow you to open a new account with them after declaring yourself bankrupt so it is important to ask how to do this when you are getting bankruptcy advice.

If I go bankrupt my spouse or partner will be liable for my debts

The bottom line is that no-one else can be made responsible for paying your debts.

Once you have declared yourself bankrupt your spouse or partner will not suddenly have to pay towards your debt or put any of their income or savings towards them.

The only time when a third party will be liable for debt once you are bankrupt is if  the debt is already in joint names or they have given a guarantee to pay if you do not.

In these circumstances they will still remain liable for the debt after your bankruptcy.

Once bankrupt I will never be able to get a mortgage

It is true that bankruptcy will damage your credit rating. After declaring yourself bankrupt a record of your bankruptcy will be added to your credit file.

This record will remain on your credit file for six years make your credit rating worse and make it more difficult to get credit.

However the fact that you have been bankrupt in the past does not mean that you can never get a mortgage in the future.

When you are discharged from your bankruptcy (after a year) you can start thinking about getting a mortgage if you wish.

Of course you need to understand that the mortgage terms you are offered will be far more onerous than for someone with a clear credit rating. However the longer you leave it to make your mortgage application after your bankruptcy ends, the better your chances of getting a reasonable mortgage offer will be.

Get the right bankruptcy advice

Clearly declaring yourself bankrupt is a serious step to take and not something that should be taken lightly.

It is therefore always sensible to get bankruptcy help from a specialist debt advisor who can help you understand what bankruptcy will mean for you. It is particularly important to get bankruptcy advice if you are a homeowner.

However, having taken the right bankruptcy advice, for many people bankruptcy is really not as bad as you may have thought and could be the best way to solve your debt problem.