What happens after bankruptcy?

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If there’s one thing we all know about bankruptcy, it’s that there are plenty of horror stories surrounding the processes, procedures and aftermath. Needless to say, due to the nature of this type of insolvency it’s always going to be stressful, but being prepared for the outcome can help, understanding what happens after bankruptcy can help reduce the strain.

It’s important to first understand how long your bankruptcy could last. Most individuals are discharged after 12 months, but it’s not rare for this status to remain in place for up to three years. There’s nothing you can do to influence the time scale, other than providing everything asked of you and complying with all court requirements, which will be viewed favourably by the official receiver.

In the event your behaviour is deemed to be dishonest, or the actions that led up to your financial situation are seen to have been irresponsible, then it is entirely possible for a Bankruptcy Restriction Order to remain in place for 15 years. For those less up on taxman talk, that means access to credit, bank accounts, mortgages and even employment can be severely restricted for a very long time indeed.

Once a judgement is made on whether your petition has been successful or not there should be no doubt as to the consequences. You will be instructed on which assets, if any, must be sold to raise money and clear debts, any limitations on your fiscal future will be explained to you, and you will be ordered to pay a monthly contribution towards clearing off the outstanding monies owed. It is vital that you stick to these legally binding agreements, as failure to do so will result in more penalties, if not a prison sentence.

The overall idea is to share out what estate you have, and work towards paying off any balances leftover as quickly as possible. In the best case scenario this will mean a year of major difficulties and personal austerity leading up to being discharged, but this is arguably balanced by the fact that after this period you will be able to return to relative normality, albeit there will always be a record of you having gone bankrupt held in the public domain.

A serious concern for many people is the impact bankruptcy will have on their job. This really comes down to the individual situation, not to mention employer. Those working in financial services, retail and wholesale may well find company policy or government law states they cannot continue in the same line of work after becoming insolvent.

In any case, you will not be able to act as an MP or company director before your discharge. In contrast to common assumptions, most pensions approved by HM Revenue are not considered part of a bankrupt’s estate, and as such whilst payments in may need to stop until creditors are satisfied, there’s very little chance you will lose the fund altogether, subject to individual terms and conditions, of course.

Money Helper (formerly The Money Advice Service) is a free service set up by the Government to help people make the most of their money. If you would like to learn more click here.

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