Everyone’s bankruptcy case is different. Here is L’s story. Few people will have the combination of a high income and high health costs that she had. But many will recognise the problem of consolidation loans not resolving their debt difficulties and have L’s worries about bankruptcy.
After years of struggling with debts and a chronic health condition, I applied for bankruptcy early in 2019.
I first started having migraines 15 years ago. In the beginning they were once every 2 months or so, then over the years they increased in frequency to about 14 to 16 a month. I have seen many specialists and there has been no cure despite media reports and well-meant suggestions from people.
I have tried many, many things to stop or reduce the migraines. Private headache specialists and physiotherapists were covered by private medical insurance through work. I even had botox injections through the NHS – each session meant 32 injections in my forehead, scalp, and shoulders.
But I had to pay for many medications, treatments and supplements myself and as my number one priority was being well enough to work fulltime and pay all my bills, it made sense at the time to spend £250-500 a month on my health.
My life and finances were heavily influenced by my health condition – restricted eating as food intolerances (dairy, wheat, tomatoes) were a migraine trigger, no alcohol as just one drink could make me feel ill the next day, and I had to live on my own as the noise and smells from other people can trigger a migraine or make an existing one worse. I couldn’t live far from work as a long commute whilst having a migraine was unbearable.
I had managed to pay off my student loans within 3 years of graduating, but trying to juggle my high health expenses alongside renting in London made it harder and harder to build up savings, so over time I relied more and more on credit cards and overdrafts.
At least twice I took out a personal loan to consolidate my debts and reduce my overall interest rates and repayment amounts, most of the time I would close the cleared credit card or overdraft account, but a couple of times I didn’t. That was a mistake – I learned the hard way that it was too tempting for me to use such credit accounts again.
Would bankruptcy or an IVA affect my job?
In 2016, I ran some numbers and realised it would take 8 years to repay my total debts of around £50,000 whilst maintaining my monthly repayments of then £900 a month – and with no savings funds throughout that time. At that point I started to research debt options including IVAs and bankruptcies.
I worked in financial services, and my employer’s HR department would not confirm whether or not my going bankrupt or getting an IVA would affect my employment. There were rules and processes that we always had to report details of our assets and our creditors, but there was nothing written down about bankruptcy or IVAs. Repeated e-mails, phone-calls, and face to face meetings with HR people, including HR managers, yielded no answers. With this lack of clarity, I decided I couldn’t risk going bankrupt whilst in that job.
I had already trimmed my living expenses as well as I could, so I instead I did another consolidation loan and got my repayments down to £750 a month.
I was quite leery of IVAs. Firstly, any negative change in my finances during the IVA period could result in the IVA failing. Secondly, the IVA arranger would charge a fee of around £5-7,000, which I would have to pay, on top of whatever portion of my total debts I would have to repay. Thirdly, I was not a company director or a partner or a business owner, so the negative impact of going personally bankrupt would be less onerous for me. Lastly, I read a lot of personal finance articles and blogs, and there were stories of fraudulent IVA and debt management plan companies who siphoned off the money that was supposed to be sent to creditors. I was not willing to take such a risk.
Eventually I moved to another employer, still in financial services, on a part-time basis of about 3.5 days a week, hoping this would help with my health and juggling health and work. But this meant a lower salary, with my calculated timeframe to repay my total debts now at 10 years.
Weeks after joining, my mere mention to my manager that I was considering going bankrupt triggered some embarrassing moments, from my manager saying she needed to speak to the Head of the Department, to my being told to enter more details of my finances into the computer records, and receiving advice from the manager on my finances. With this employer, my observation was that it would definitely be risky to apply for bankruptcy.
Instead I tried to focus on just work, and just health. I cut down on my social interactions – there was no time to visit friends when my priority was work and rest as migraines are exhausting. My work was very dependent on Brexit so the added stress from that was crazy.
At the start of 2018, the stress from work, and my health, and worrying about my current and future finances, resulted in my having strong suicidal feelings. Fortunately I was able to immediately call NHS 111 and my father. I had several sessions with a psychiatrist and a counsellor a GP recommended over the next few months, all covered by private medical insurance.
But it became very clear that for my mental and physical health I needed to stop working completely. For years I had prided myself on being able to work and being financially independent whilst having so many migraines each month. Two neurologists had told me they had never seen anyone hold down a job with the frequency of migraines I was having. So it was a very painful decision to stop working and apply for employment and support allowance, and housing benefit, having never applied for any government benefits before then.
Thinking about going bankrupt
Being unemployed made the decision to go bankrupt easier in some ways. Firstly, no job so there was no risk of being fired or chased out of work as a result. Secondly, no job so no income, so it was clear I could not afford the debt repayments. From my reading I knew that as I had no realisable assets (no property, no savings, no car), none of my possessions would be sold. Being decades from retirement, my existing pension funds would not be affected by a bankruptcy.
But the weight of depression, anxiety, and disappointment with myself at having so much debt, and having to stop work, meant I struggled to do the bankruptcy application for months.
I read articles on Debt Camel, Citizens Advice, StepChange and the gov.uk pages on bankruptcy. I had a bankruptcy spreadsheet with budgets, action lists and useful website links. I filed documents in date order and checked all my creditors’ reference numbers and addresses.
My one bank account had no overdraft or any other credit attached to it, so I met with the bank manager to discuss how going bankrupt would affect it. They said given I didn’t owe them any money, they would only close the account if the OR asked them to. I would be able to keep using my existing debit card, online banking facilities, etc as normal. It was a bit of a gamble, but I chose to not open another bank account before applying for bankruptcy – if the account did end up closed, once declared bankrupt I could just open a basic bank account elsewhere.
When I stopped working my debt was about £35,000. I made sure to stay up to date on my priority bills; rent, electricity, water, and council tax so they would not be included in a bankruptcy application. I also switched from a pay monthly mobile plan to pay as you go so that would be one less direct debit to deal with.
I had first notified my creditors in mid 2018 of my health conditions (depression, anxiety, and migraines), that I would be stopping work in the next month, I would not be able to make any repayments (not even a token £1 payment as two creditors suggested), and that I would be filing for bankruptcy in the forthcoming months.
Every creditor appeared understanding and they made notes in my files to only contact me if necessary and by letter because of my mental health. I did receive calls from one creditor but it was much more of a request for updates rather than asking / pressuring for repayments, and that was every 60 days or so.
When I finally did the bankruptcy application, I had all the relevant documents, e-mails, and budget figures next to me, so it only took me three hours to complete it in one go whilst triple-checking my answers.
I was extremely fortunate that my family gave me the money to pay the £680 fee, as I could not have paid it from benefits, and did not have the time or energy to apply to the charities that said they offered help for paying bankruptcy fees, and then wait to see if they would help or not.
I paid the bankruptcy fee and submitted my application just before noon on a Wednesday, timing it to be a different week from when I usually received benefits payments. I took out £100 in cash from my bank account, leaving just £20 in it.
Two days later on Friday, I received an e-mail at 10.30am that I had been declared bankrupt, with attached documents, one of which was my bankruptcy certificate. Around noon I got a phone call from my appointed Official Receiver (OR) to schedule a one hour telephone interview, and we agreed to do it at 2pm that same day, as I had all paperwork at hand.
It was one of the most facts-based interviews of my life, but only took 45 minutes. I cried a couple of times from feeling emotional, but not because of the OR. He was focused on dates, names of creditors, timeline of the debts, reason for taking out each debt and what the money was used for, whether any creditors had received preferential repayments in the last 2 years, whether I had taken out new credit in the last 2 years. There was zero judgement or criticism or patronising or anything negative from him. I told him about my conversation with my bank and that I would like to keep that account open.
The OR said I would not have to make any income repayments based on my current circumstances and I should update him if they changed. He also confirmed I would not have to pay any council tax for the rest of the council tax year, and said I should write to my local council saying so, which I did.
I was asked to post or e-mail in copies of recent 12 months of my bank statements, copies of my pension fund statements, and a copy of my tenancy agreement within a reasonable time frame, which I did.
A mix of emotions
Since being declared bankrupt I have had a mix of emotions: relief from feeling free of the debts, embarrassment and anxiety from googling my not common name and having the bankruptcy details come up, excitement and fear about my future.
My bank account wasn’t closed which was very helpful. My landlord, electricity provider, and internet provider have had no issues with my being bankrupt as I have kept up to date with payments.
I have a few months to go from being discharged from bankruptcy. I haven’t applied for any credit and don’t plan on doing so in future.
Ironically one creditor included in the bankruptcy began sending me arrears letters weeks after I was declared bankrupt. They were standard letters but given the timing and frequency, and their ignoring a letter from the OR and phone calls from myself, I wrote a complaint to them, which is currently under investigation.
Do your research & be realistic
If anyone reading this is considering bankruptcy, I would say do a lot of research and plan ahead. I used DebtCamel extensively.
I would also say be careful of what you read on the internet – consider the potential biases of the author. For example websites that suggest or imply a bankruptcy is never a good idea but an IVA is a great one – there are firms that make money by arranging an IVA, but no firms make money by arranging a personal bankruptcy.
Also consider the qualifications and experience of the author – some people suggested online that the OR would go through 6 years of my bank statements, that my electricity provider would refuse to keep supplying me, that my internet provider would refuse to keep supplying me. None of that turned out to be true.
I also noticed that some debt advice charities are very biased towards debt management plans over bankruptcies, even when the repayment amounts are ridiculously low. For example, a token repayment of £1 or £5 a month on a £10,000 debt over more than 2 years is just dragging out the debt and the stress from it.
Sometimes a person has to make a realistic assessment of if they can repay their debt within a set timeframe whilst not taking on additional credit or having no savings funds, not just hope it will somehow resolve itself over the next decade or more.
I hope L’s account may help to dispel a few myths. It’s easy for a debt adviser to say that going bankrupt is usually a lot less painful and difficult than people fear, but it’s good to hear a real person’s experience.
I’ll just add a few comments:
- bankruptcy is usually better than an IVA for someone with no assets, but “fraudulent IVAs” aren’t something to worry about;
- L was anxious to not have arrears of council tax or utilities. Actually these aren’t a problem at all in bankruptcy;
- L was very well-organised! But Official Receivers are used to talking to people who don’t have all their paperwork to hand and neatly sorted.
It is always worth talking to a debt adviser about your decision to go bankrupt, even if you are sure it is your best option. Call National Debtline on 0808 808 4000 for advice.