People often ask if they should tell their creditors that they are going to go bankrupt.
It is normally a good idea to tell your creditors if you are in financial difficulties, not ignore them. But in this situation 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. So you aren’t likely to gain anything.
Most will ignore it. They have heard lots of people say they are going bankrupt and some of them don’t intend to do it, they are just hoping a creditor will write off a debt.
A few debt collectors, especially bailiffs, may even decide to hassle you more as this is their last chance of getting any money from you :(
Almost all debts are wiped out when you bankrupt. But if you have already let a bailiff into your house and he has a list of things he will take if you don’t make agreed payments (called a controlled goods agreement), this isn’t wiped out. So before you go bankrupt you need to keep a bailiff out of your house if possible, see Bailiffs – do you have to let them in?
Be very careful if you have a house
And 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 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. 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 hassle that you just don’t need at all, so avoid this by not mentioning bankruptcy.
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 want – 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 from now 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. Offer them a token payment of £1 a month, 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.
Of course if you have the bankruptcy fees ready, then it doesn’t really matter who you tell. The process of applying to become bankrupt and having your bankruptcy approved can be very quick. But if it is going to take quite a few months to save up the bankruptcy fees then your life is going to be easier if you don’t tell your creditors.
What about after bankruptcy?
After bankruptcy the Official Receiver will contact your creditors and tell them – you don’t have to. But there are a few situation in which you may want to, see Who should you tell when you have gone bankrupt? for details.