How to deal with bankruptcy

If you went bankrupt, it would have a significant impact on your finances, your credit record and your future.

During bankruptcy

Dealing with bankruptcy while you’re still ‘undischarged’ is likely to be a very challenging time and you may still face challenges in the years that follow too.

You may be required to attend court and every aspect of your financial affairs will be scrutinised. On the plus side, you won’t have to deal directly with your lenders any more, which may offer some relief.

You won’t have the freedom to manage your financial affairs anymore – except for your essential living costs. You may find during the process of bankruptcy that your finances are more limited than in the past. You won’t be able to apply for any more credit during this time, except in special circumstances and with the permission of the bankruptcy administrator.

If any of the debts included in your bankruptcy are with your bank, it’s likely that bank account would be closed, or at the very least ‘frozen’, if you went bankrupt. If so, it’s important to open another bank account to manage your finances effectively. This isn’t as straightforward as it sounds. Most banks credit-check applicants and bankruptcy remains on a credit record for many years.

However, it is still possible to open a bank account during bankruptcy, although these accounts are harder to find. You’ll find more information for bankrupts and undischarged bankrupts looking for a bank account here.

During bankruptcy while you’re ‘undischarged’

The period during bankruptcy while you’re still undischarged is going to be difficult for many reasons. First of all, most banks will turn you down when you apply for a bank account because you are considered ‘high risk’, although there are some rare bank accounts that are even open to undischarged bankrupts.

Someone else will be managing your personal financial affairs during bankruptcy and you will need to justify most of your spending. During bankruptcy, it’s a good time to keep a record of your daily spending, so that you can keep an accurate budget.

This may be a pre-requisite of your bankruptcy order, as you need to demonstrate to lenders that you are repaying as much as you can afford. Your personal budget may reveal areas where you could cut back. Budgeting is a good habit to get into anyway – it could help you to manage your finances in a really healthy way, and even avoid more credit problems once your bankruptcy becomes discharged and you’re in charge of your money again.

Following bankruptcy

Once the bankruptcy is over, further financial restrictions may apply for years into the future. You’ll find it more difficult to borrow money, or obtain a mortgage. Bankruptcy is often seen as a ‘fresh start’ for people who became overwhelmed by unsecured debts – although secured debts are not written off by bankruptcy. The period following bankruptcy is an ideal time to plan ahead to secure your financial future.

You may consider insuring yourself, your income and your home from unforeseen events. Some insurers may base the cost of the premium on your credit record, so you may find it more expensive than it would be for someone who had never gone bankrupt.

Once the bankruptcy is over, you may feel a weight has been lifted. Apart from the people you deal with for financial matters, you never need to let it bother you again.

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