Government figures show that 23,251 people in England and Wales became insolvent in the first three months of 2006 - a 73% rise compared with the same period in 2005. And Equifax, the instant online credit information provider, is concerned that many consumers do not understand the implications of going bankrupt, thinking that it's an easy way out of debt with no real consequences.
Neil Munroe, External Affairs Director of Equifax comments: "The 2002 Enterprise Act means a bankrupt's debts can be written-off after one year instead of three. This has led to a number of people struggling with debts to see this as an attractive option to wipe the slate clean. However, we are concerned that some people may not realise that the record of bankruptcy will remain on their credit file for six years.
"It is crucial, therefore, that consumers are aware that it can have quite a long-term impact on their life. Lenders use an individual's credit file when assessing applications for credit or loans. Bankruptcy could result in them either being declined or paying a premium. It can also affect their ability to get a job, and even get have a mobile phone.
We are presenting consumers with the facts, so that they go into bankruptcy with their eyes open."
Bankruptcy - the facts
You won't have to pay your creditors if you go bankrupt
Wrong - If you have any assets (such as equity in a house),
they may be sold with the proceeds going to the creditors. Your monthly income
will be assessed and if the insolvency examiner finds you have more than you
need to meet basic living requirements, a proportion of the surplus will be
paid to creditors for a period of three years.
Your council can't make you bankrupt if you don't pay your council tax
Wrong - You can be made bankrupt if you owe a minimum of £750
unsecured debt - and that could include arrears on your council tax.
It costs nothing to go bankrupt
Wrong - It costs £460, a fee paid at court covering
court costs and the Official Receiver's fee. They do not accept cheques or credit
cards - cash only.
Other people won't know that you're bankrupt
Wrong - Bankruptcy orders are a matter of public record. They
are advertised in the London Gazette and a local newspaper. The information
is also displayed on the Individual Insolvency Register (accessible on the Insolvency
Service website) for a period of three months after you are discharged.
You can keep your car if it's worth less than £3,000
Wrong - The value of your car is irrelevant when it comes
to deciding whether it will be sold to pay your creditors. If your car is essential
for work and worth more than around £3,000 but you can't find another
person to pay for the excess value, the car will be sold and you will have to
buy a cheaper model with the surplus cash going to your creditors.
If you're bankrupt and come into some money eg win the lottery or get
some inheritance you get to keep it all
Wrong - You have a legal duty to inform your trustee of any
assets acquired after the date of your bankruptcy. The trustee will then claim
all the money you have gained. The money will be released only after all costs
and debts are paid, including any interest you owe. You could then apply for
a bankruptcy annulment on the grounds of payment of debt in full.
The restriction on you while in bankruptcy lasts 12 months
Wrong -If you do not cooperate with the Official Receiver
or your trustee the court can make an order to suspend your discharge from bankruptcy
until you cooperate. So you can be bankrupt indefinitely. There is also the
possibility of the court making a bankruptcy restriction order against you if
you are found guilty of misconduct (for example, getting a loan with no intention
of paying it back just before your bankruptcy). Under such an order most of
the restrictions placed on you during bankruptcy remain on you for an additional
2 to 15 years.
Bankruptcy is an easy option
Wrong - Recent changes to bankruptcy law have reduced the
period that most people have to remain bankrupt before they are discharged,
but you will lose almost all your assets and are likely to pay a lot more when
you borrow money once you are discharged because you represent a greater risk
to the lender.
You can have a fresh start in a new job
Wrong - It is now common for many large companies, especially
those in the financial services industry and those working in areas that require
high levels of security, to use credit information as part of an individual's
reference. Bankruptcy on an individual's credit file could have a negative impact
on the employer's decision.
Once discharged you will be able to gain credit again
The fact you were bankrupt is held on your credit file for six years. Lenders use credit information to make lending decisions, which could make it difficult for you to obtain credit including mortgage, mobile phone, loans, and credit cards.
