It is a curious truth that many bankruptcy myths abound which ultimately leads to a widespread lack of understanding of just what bankruptcy is all about and what the real consequences are. I shall take a closer look at some of the more common myths I come across from time to time:
“If I am made bankrupt I will go to jail”
I get asked this question from time to time. Debtor’s prisons disappeared more than 100 years ago thankfully and in fact the last one closed in 1869. Let’s be clear, finding yourself in an insolvent position or bankrupt is not a crime though if fraud has been committed in obtaining any of the credit that forms part of your bankruptcy then that is another matter altogether.
” If I go bankrupt I will lose my job”
Many people believe, usually quite wrongly, that if they go bankrupt they will lose their job. In fact this is often cited as a reason to enter into an Individual Voluntary Arrangement as a better alternative to bankruptcy and hence this bankruptcy myth often leads people into an IVA for the wrong reasons.
A number of professional bodies may well take away your practising certificate or license and if you are a member of a professional body or hold any type of license, you should check with the issuing body as to whether bankruptcy may affect you.
Until a few years ago, most UK police forces had a policy of automatic dismissal for police officers who were made bankrupt and as a result Individual Voluntary Arrangements were very popular indeed for indebted police officers for very many years. Police forces across the country have relaxed their policy on bankruptcy now and I do not know of any police force in the UK who dismisses their officers if they are made bankrupt.
In some instances it will be up to the employer and their own employment policy as to whether they will employ someone who has been made bankrupt and if you have any doubts you should make some discrete enquiries with your Human Resources department. It is fair to say though that attitudes to bankruptcy have changed radically in recent years and employers who take a dim view of bankruptcy are very much the exception nowadays. Most people, other than some professionals mentioned above, are NOT going to be adversely affected career-wise by going bankrupt.
Whilst I will deal with directorships in another article, it is worth mentioning here that you cannot be a director of a limited company, nor seen to be a director of a limited company (a shadow director in other words) if you are bankrupt.
“I cannot operate a bank account if I am bankrupt”
Allow me to dispel this bankruptcy myth straight off! The Official Receiver is happy for you to operate a bank account during the course of your bankruptcy. The general guidelines on this are that so long as you don’t owe the bank account provider any money, and as long as there is no overdraft facility on the account and no cheque guarantee card, then the Official Receiver will be happy for you to continue to operate the bank account. If the account is overdrawn at the date of bankruptcy it will usually be closed and you will need to open a new bank account with a bank to whom you do not owe any money.
As regards to the attitude of the banks in this regard, all banks of course retain their own right to take any decision as to the future operation of a bank account as they see fit but as long as the criteria above is met the Official Receiver will always be happy to advise the bank that they have no objection to the bank account being retained.
Everybody needs a bank account nowadays for receipt of salary and payment of bills and there is no reason at all, why you should not be allowed to operate a bank account whilst bankrupt. In fact a number of banks are well geared up for opening accounts for bankrupts. If you have any trouble opening a bank account just prior to, during, or after your bankruptcy contact me and I will try and hep you.
“If I go bankrupt I will lose my house”
It is a surprise to many that this is far from being the standard way in which the family home is dealt with in bankruptcy. A detailed appraisal of how the family home is dealt with in bankruptcy is beyond the scope of this article and an in depth, detailed article on this very important issue is to follow shortly.
There are a number of options available to property owners who are made bankrupt and I will be discussing the options available to bankrupts with equity in their property, people with little or no equity in their property, solely-owned properties, jointly-owned properties with only one joint owner bankrupt, and jointly-owned properties where both owners are bankrupt.
As with the bankruptcy myth about your job, it is frequently the case that people enter into Individual Voluntary Arrangements because they feel, or indeed are advised, that it is the only way they can keep their home. The good news is that this is not always the case at all but of course, all situations are different and independent professional advice should always be sought when considering your options.
Other common bankruptcy myths
It is widely believed that you will lose your motor vehicle and all your personal possessions, even household furniture and equipment if you are made bankrupt. I won’t deal with these myths and misconceptions here because a forthcoming article about what is and is not included as assets in bankruptcy will follow soon.
Many people think that if you have been made bankrupt, you will not be able to continue to trade or to start trading a new business. There are criteria to be adhered to but bankruptcy does not of itself stop you from trading as a sole trader or within a partnership. Everyone is entitled to make a living! In fact, I shall publish a brief article on the subject of trading as a bankrupt soon.