Guide to the misconceptions of insolvency
Scared of bankruptcy? Heard nothing but horror stories about people struggling after filing for bankruptcy? Many times people have avoided filing for bankruptcy because they are too scared of the so called implications. Most of the time these negative rumours and stories are misplaced simply because of a lack of knowledge of the subject.
Bankruptcy was introduced to help people out of disastrous financial situations in a bid to clear their name and their conscious of the burden of debt.
Misconception #1: You will lose everything if you file for bankruptcy
This is one of the most common misconceptions regarding bankruptcy. In fact, it is the exact opposite. Filing for bankruptcy is a protection against creditors claiming your valuables, and allows you to start fresh. Under Section 283(2) of the Insolvency Act, you are allowed to keep tools of the trade, all clothing, bedding, furniture, household goods and even your car in some cases. Actually, even if the bailiffs do decide to claim your car, they are obligated to replace it with another vehicle capable of doing the same job.
Misconception #2: Bankruptcies are too long and reflects badly on your credit file for many years
In 2004 the law changed and the mandatory period required to serve under the bankruptcy order was reduced from three years to just one. In many cases, bankrupts can also be discharged from their bankruptcy in as little as 3 months. At the Official Receivers discretion, an early discharge is possible, as long as no creditor objects. Generally, the average discharge period for those granted an early discharge is 7 months.
Misconception #3: Credit black list
The existence of a ‘credit black list’ is not true. In actual fact, every time you are extended a financial facility, your repayment performance is recorded. Whenever you apply for another facility, your lender will check your profile and base his decision on whether you meet the required lending criteria. There are also a few lending institutions and banking facilities allowing discharged bankrupts facilities in order to rebuild their credit profile.
Misconception #4: Entering into a bankruptcy will destroy your credit profile for life
This is just another ploy IVA factories use to get you to apply for an IVA instead. Actually, the difference made to your credit profile by bankruptcy or an IVA is quite small. Both remains on your credit record for 6 years from the date of commencement.
It is wise to get the right advice and not listening to horror stories before deciding which option is best for you.