Last Updated: Sunday 17th March, 2013
Most of us understand that bankruptcy is a bad thing and that it signals the end of the line when it comes to broken credit agreements or too much debt. but what happens after it? In this article, we'll look at whether or not bankruptcy is really the end or if it is actually the beginning of a new way of living.
Declaring yourself bankrupt is one option, which many people, hit hard by the credit crunch and then harder still by the recession, might consider. For some people bankruptcy is the only viable option and it's there for people who can't possibly repay their debts.
Bankruptcy usually lasts in the region of 1 to 3 years. During that term, you are classed as an un-discharged bankrupt and that means certain restrictions are applied to your finances. You may also need to pay a monthly sum to clear off your debts to someone associated with your bankruptcy case. If you follow the guidelines outlined by the officials dealing with your case, you could be discharged from bankruptcy within 12 months and that means you can live as you lived before. Although you will likely be more careful with credit! However, you could need to still make payments for 3 years.
If the Official Receiver (OR) who deals with your bankruptcy case thinks that you've been dishonest or irresponsible, then you could have a Bankruptcy Restrictions Order placed on you that will then prevent you from being financially free for up to 15 years.
Some people think that pensions are affected by being made bankrupt, but the truth is, if you have a pension which is approved by HM Revenue it is perfectly safe and not classed as part of a person's estate. For unapproved pensions, you can ask the Official Receiver specifically for some help to try and exclude and protect it.
If you are getting payments from a pension at the time that you are declared bankrupt these will be classed as income and you might have to pay contributions towards your debt (to the Official Receiver) out of it.
If you are made bankrupt, there are certain jobs that you'll find you're exempt from undertaking such as a company director role or an MP position, there are also other professional bodies such as Law organisations that will not hire anyone who has filed for bankruptcy. However, once you've been discharged you can work in any position that you could before you declared bankruptcy.
Moving on from bankruptcy doesn't have to be hard as long as you have changed the way you think about money and appreciate that you need to manage it better. It does have a permanent affect on people because it changes the way that they fundamentally treat cash and in some cases the way they view themselves and others. It is a hard experience to have to go through and it can cause stress and embarrassment, but it can also give people who have lost all hope a fresh start and that's invaluable.