People often ask if they should tell their creditors that they intend to go bankrupt. It is normally a good idea to tell your creditors if you are in financial difficulties, but here it won’t help you much and if you own a house it could be dangerous.
You won’t gain from telling your creditors
Few creditors will feel sorry for you and stop pestering you if you tell them you are going bankrupt. Most will ignore it as you may just saying this and don’t mean it, or you could change your mind. A few may even decide to hassle you more as this is their last chance of getting any money from you :(
If you are renting, then you won’t lose much from telling your creditors, but neither will you gain anything. But if you have a house then you need to be more careful.
If you want to stay in your house after bankruptcy
Bankruptcy doesn’t always mean losing your house if it is in negative equity or there is someone (your partner or a relative possibly?) who could “buy” your equity from the Official Receiver, see the information on bankruptcy for more details.
If you tell an unsecured creditor that you intend to go bankrupt, there is a risk that they may rush to try to get a charge over your house, because if they can do this then their debt will not be wiped out by your bankruptcy.
This isn’t usually a very large risk as it will take some time for the creditor to first get a CCJ and then apply for a charge – most creditors simply won’t bother unless they already have a CCJ. But court cases are a potential hassle that you just don’t need at the moment when you are scraping together the bankruptcy fees and trying to fill out the forms.
If you are going to leave the house and rent
The problem of unsecured creditors going for CCJs and then charges won’t matter if you are going to hand back the keys and have the house repossessed. But in this situation, if you have stopped paying the mortgage or any secured loan in order to save up a deposit to rent then it is essential that you don’t tell the mortgage lender that you intend to go bankrupt. You want to be able to stay in control, so that you leave the house when you have found somewhere to rent rather than be evicted.
If you tell the lender that you are going bankrupt, then they may try to get a possession order immediately if you have arrears. Even if you expect to be renting in a few weeks it is still better to say nothing – something may go wrong with your plans. The page about the process of going bankrupt talks about the “race” for you to find somewhere to rent before you are evicted – make sure you have a head start in this race by not telling your mortgage lender that you are going to go bankrupt.
So what should you say?
Anything really, just don’t mention the B word. Tell them you expect to be able to pay more in a few months time or simply say you are going to be taking debt advice and leave it at that.
What about after bankruptcy?
After bankruptcy the Official Receiver will contact your creditors and tell them – you don’t have to. You may still get letters and calls for a while until this happens. Letters you can safely ignore. On the phone give the creditor your bankruptcy reference number – you will have been given this at the court when you go bankrupt.