Author: Laugh Arne

What are the consequences of bankruptcy?

If bills are piling up and paying them seems like a far-off dream, it may be tempting to start thinking about filing for bankruptcy. But before you do, you need to strongly consider what the consequences will be. Bankruptcy is not a decision to be taken lightly and the ramifications can be significant.

Scrutinised

If you’re typically a private person, then you should be prepared for every part of your finances to be put under intense scrutiny. Your name will also appear in the London Gazette and on the insolvency register as someone who has been declared bankrupt, so there’s also the personal and social embarrassment of your friends, family and even people you only know in passing potentially finding out. This article on the Citizen’s Advice website provides some good information about where details of your bankruptcy will appear.

Losing everything, including your home

When you declare bankruptcy, your property and anything else of any worth, such a vehicle or any collector’s items, will be sold to recoup some of the debt you owe. With the exception of anything deemed essential, if you have any other items of value, they will have to be sold too. So, for example, you can no longer lay claim to an expensive music system you own if all you use it for is listening to your favourite songs at the weekend. However, if you use that same system for paid DJ work or providing entertainment at parties, then it’s considered essential to your livelihood and you can’t be forced to sell it.

Even if you don’t own your home, you should check your tenancy agreement to ensure there isn’t a clause that your landlord could use to evict you if you go bankrupt. If there is, finding new rented accommodation will be more challenging for someone who is bankrupt.

No more bank accounts and credit cards

Once bankrupt, your bank accounts will be frozen and you will no longer have access to your credit or debit cards. While many people prefer to manage without credit cards, getting by without a bank account may be a lot trickier. All reputable employers will insist on paying wages into a bank account. You may be able to ask them to pay it into someone else’s account, but this can cause several problems. The benefits agency now pays all benefits into the claimant’s bank account too. In some cases, you may be able to open a basic account though.

If you have problems getting a basic bank account, your employer may want to know why you don’t have your own account and there’s nothing to stop the person whose account the wages are paid into from not passing the money onto you, for example, in the event of a relationship breakdown.

Bound by restrictions

Bankruptcy comes with a set of restrictions. For as long as your bankruptcy status lasts, you must tell any potential lender that you are bankrupt if you are requesting a loan of more than £500.

You can no longer act as a company director or create, manage or promote a company without written permission from the court. You must not manage a company under an alternative name without letting the people you do business with know you are bankrupt. You will not be able to work as a debt specialist either.

Breaking any of these restrictions will lead to prosecution.

Losing your job

You could lose your job, particularly if that job involves a high level of trust such as cash handling or handling people’s personal details. Some professions which you would no longer be able to work in are; the police, the armed forces, postal services, legal and accountancy. There is a more complete list of professions shown at the Step Change website here.

If unemployed already, finding work will become increasingly challenging.

Immigration

If you have or are applying for immigration status, this could be affected by bankruptcy.

Your credit rating

Even after bankruptcy, it can take a long time to repair your tattered credit rating. It will remain on your credit report for anywhere between 7 and 10 years.

If and when you are able to apply for a new credit card, this is likely to be one with an extremely high APR. You will have to pay the full balance each month to avoid this interest. In some cases, there may be an annual fee too.

Rebuilding your credit rating can be a long and expensive process. Experian have some tips on building your credit score here, and this article at Growing Power discusses some of the less understood things that can impact your credit score.

Other consequences

You will always have to declare you were bankrupt when filling out forms that ask this question. This can affect job applications and the chances of being accepted for a mortgage. Insurance companies may refuse to insure you or insist you pay more for the privilege.

Declaring bankruptcy should only be a last resort, after considering these consequences carefully and speaking to a qualified professional to discuss other options, such as ways to way off your debt or other options available to you. The decision shouldn’t be taken lightly, and you should be prepared for the changes if you do decide to go ahead with declaring bankruptcy.

5 things you can do to slash the cost of your home insurance

Home insurance can be a tricky minefield to navigate, especially if you don’t feel like it’s something that you can afford. And whilst listing the reasons home insurance is useful for you is a whole other article, there are a few tricks and tips that you can employ to dramatically decrease the cost of your home insurance.

But let’s answer a basic question: what is home insurance? Home insurance (or homeowners insurance) is a policy that covers your home and protects not only the property but the belongings inside of it as well. Generally, you will find three different types of home insurance – contents insurance, buildings insurance and a combined policy of the two. That way, if your home is burgled or damaged due to flooding, fire, electrical failure or any other instance where your personal property may be damaged, insurance can help and protect you. So how do you cut the cost of a home insurance policy?

1. Know what you need

Every home and homeowner is different – so everyone is going to want something a little bit different. There’s no use buying a flashy policy that looks like it might suit you if it’s going to offer things you either don’t need or don’t want. If you own your home outright, then you’ll want to invest in buildings insurance or a combined buildings and contents insurance, as you are liable for any damage done to the property. Note that mortgaged homes are required by the lender to have buildings insurance in place.

If you’re leasing or renting your home, then buildings insurance should already be covered by the owner of the property. Contents insurance should be an automatic purchase, particularly if you own any high-value items like technology or valuable clothes, jewellery or artwork.

2. Don’t pick the first policy you find

These days, it pays to shop around. Thanks to the bounty of price comparison websites, you can find the best deal for you with just a few clicks – and this could help you save money in the long run. Some consumers find it cheaper to purchase a combined policiy to ensure full coverage, but these are not necessarily good value for money and may not be relevant for your current living situation.

You should examine every policy you look at carefully as not every insurance provider covers the same things. Some may even ask you to pay extra to cover you against specific issues, such as legal expenses cover or accidental damage. Making a list of what each provider offers and comparing it against your specific needs will help you select the insurance policy that best fits your property right now.

3. Annual payment over monthly payment

When you sign up for your home insurance policy, you’ll be given two options for payment: a monthly payment or an annual yearly payment. If you can afford to pay the premium upfront, it’s highly suggested that you do so. Not only does it ensure you’re covered for at least twelve months, but some providers may also offer discounts on longer insurance policies if you pay in full when you sign-up.

It can also save you money in the long term: some insurance providers increase the APR (annual percentage rate) when you pay in monthly installments, rather than if you pay yearly. Though this may not be available for some people who take out insurance policies, it can be a nifty way to avoid unexpected extra costs on your insurance payments.

4. No-claims bonus

A no-claims bonus can be earned for every year that you don’t make a claim on your home insurance policy. The more time you go without claiming on your policy, the bigger discount you can receive on the overall cost of your insurance, as – from the perspective of the insurance company – you won’t cost as much to insure over time. Read more about home insurance no claims bonuses here.

A few tricks to do this include thinking twice about making a claim, installing security measures outside your home and investing in things to reduce the potential for weather damage, including flood barriers, fitting smoke alarms and insulating your pipes during the winter to ensure they don’t freeze.

5. Take other precautionary measures

Protecting your home to reduce the chance of theft or damage is an easy way to ensure you’re not overspending on home insurance or at risk of losing your no claims benefits. Installing a security system, including a working burglar alarm, may decrease the chance of a break-in but will also ensure that you and the local police know if someone is attempting to enter the house.

Another tip is to make sure to change the locks of your home when you move in, particularly if you’ve just bought a property. Make sure not to leave valuables on display and consider investing in a safe or other protective measures to keep the most valuable items you own safe and away from prying hands.

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