credit and debt

bankrupt?

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I was listening to the radio this morning and one of the news announcements was that the number of bankruptcies in the UK has reached record levels.

What should be your first moves after bankruptcy to restart your financial future?

Firstly, understand the limitations that being bankrupt has placed on you. For the time that you are bankrupt until you are discharged (usually after one year)

• you cannot use credit cards
• you cannot use bank or building society accounts
• if you want credit (like a loan) for more than �500 you must tell your creditor you are bankrupt
• you cannot make payments direct to your creditors - it has to go through the official receiver (except maybe mortgage arrears and child support)
• if you have an ‘income payments agreement’ you are obliged to pay fixed monthly payments for three years
• you are usually forbidden from being a company director
• there may be restrictions on your employment opportunities - especially if you work in the financial or legal sectors

Secondly, you need to understand why you became bankrupt in the first place - not just the initial cause but the underlying reasons. If you have generally overspent, or you have problems managing credit, then you need to look carefully at your planning your life better with a budget. If your business went under, was that because the market was no longer there, you didn’t have the skills needed to run it, or some other cause? If your bankruptcy was caused by unemployment do you need to retrain, could you have had a larger emergency fund?

Really trying to work out what went wrong and lead to bankruptcy should help you avoid further financial problems in the future, so that you can get the most out of the opportunity.

Finally, you should make plans for the medium term. Once your bankruptcy is discharged you will be free from the debts you owed at the time of the bankruptcy order with the exception of fines, student loans and unpaid maintenance. This is good - its why you chose bankruptcy.

You have been used to living on the income the Official Receiver thinks is reasonable. You could use any extra to start emergency savings, and add to your pension fund. You are likely to find it more difficult to acquire credit for several years. Think of this as an opportunity to get yourself back on a firm footing and preventing you from making some of the same mistakes again.

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