It is normally a good idea to tell your creditors if you are in financial difficulties, not ignore them.
So should you tell people you are planning on going bankrupt?
And who do you have to tell afterwards?
Before bankruptcy – 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.
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 to your creditors.
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 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 have thebhouse repossessed by the mortgage lender.
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. So 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 is 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.
After bankruptcy – it can make your life easier if you tell some creditors
You don’t have to tell anyone!
All the debts listed on your bankruptcy application will be informed by the Official Receiver (OR) that you are now bankrupt.
But this takes a few weeks, so there are some situations where it’s good to tell a creditor yourself because it will make your life easier.
Debts you have been paying
As soon as you have gone bankrupt, you should stop making any payments to unsecured creditors.
This includes credit cards, loans, payday loans, catalogue debts, utility arrears, council tax and other tax debts.
If you are paying by Direct Debits or Standing Order, cancel all these. Don’t have to ask the creditor if you can do this, the bankruptcy rules say you have to.
You don’t need to write or phone the creditor to explain why. The OR will inform them about your bankruptcy.
If you have a pre-payment meter for electricity or gas which has arrears loaded on to it, contact the utility company as soon as possible and tell them your bankruptcy details. They should remove the arrears from your meter, so all the money you add will be available to spend.
Telling them sooner is good as the deductions from your payments will stop sooner.
Deductions from benefits
Most benefit overpayments are included in bankruptcy but this can be complicated. If you took advice on going bankrupt from a debt advisor, you will hopefully be clear on whether your overpayments are wiped out.
Where a benefit overpayment is included in your bankruptcy, then you should tell the DWP, your local council or HMRC and ask them to stop deducting money from your Universal Credit or other benefits.
If they refuse to stop deducting money, go to your local Citizens Advice and ask for help to get this resolved. This doesn’t often happen.
What if creditors contact you after bankruptcy?
If you are phoned or a door-step collector comes round, just give them your bankruptcy details: “I went bankrupt on dd/mm/yy and my bankruptcy number is 999999.”
Letter from a lender or a debt collector soon after your bankruptcy can usually be ignored – either the OR may not yet have told the creditor or the creditor’s systems haven’t yet been fully updated yet.
One exception is if you get a Letter before Claim/Action, this is a special letter that has to be sent before a court case is started. It’s easier to reply giving your bankruptcy details now than have to stop the court case.
If a creditor continues to call or write, then write or email them with your bankruptcy details and ask them not to contact you again.
If a creditor keeps contacting you after you have told them you are bankrupt, pass the details to your OR. This is very rare – not something to worry about.
Debts where court proceedings are underway
Bankruptcy gets rid of almost all of your debts, so no court proceedings should continue, including:
- Liability Orders for council tax arrears
- Claims in a county court that would lead to a county court judgment (CCJ); and
- Charging order cases in a county court.
If a court case has already started, tell the creditor and enter a defence to these proceedings: state that your bankruptcy application was approved on dd/mm/yyyy, and give your bankruptcy number, this is on the Bankruptcy Order you were sent.
National Debtline is a great source of advice for all matters court-related. They have a good library of information, but if you are in any doubt, phone them up or use their webchat.
If you don’t do this and you get a CCJ after you are bankrupt, you can get this “set aside” – the legal term for cancelled – but it is just simpler to enter a defence and stop the CCJ being made in the first place.
Debts with a bailiff
If you get a letter from a bailiff, you need to know what debt it relates to:
- if it is a CCJ, council tax arrears or a parking ticket then tell the bailiff that you have gone bankrupt.
- magistrates court fines are not wiped out by bankruptcy.
If you aren’t sure, contact National Debtline on 0808 808 4000 urgently to see if you do still have to pay this debt and, if you do, how to deal with the bailiffs.
Where you have already let a bailiff in and they have made a controlled goods agreement – this is a list of your things that the bailiffs will take and sell if you don’t make the agreed payments – then you need urgent advice. Call National Debtline as soon as possible.