Entering bankruptcy will have a big effect on your finances. As a type of insolvency, it's usually considered as a 'last resort' for people with serious debt problems who simply cannot afford to repay their lenders in a realistic amount of time.
Here we'll look at what bankruptcy involves, and what steps you could take to improve your situation whilst your bankruptcy is underway.
What will happen during bankruptcy?
Bankruptcy is a legal process designed to help people with unmanageable debts regain control of their finances and, upon successful completion (usually after 12 months), write off any remaining debt.
However, under the terms of bankruptcy, any valuable assets you have - including your home - may be sold to help repay your unsecured lenders, and you'll be protected from any further action from them.
You may also be required - if you can afford it - to make monthly contributions for three years.
Bankruptcy is a serious decision, and can come with certain consequences that could have a big personal - as well as financial - impact. For example, you will not be able to work in certain professions (as the director of a company, for example) and your bankruptcy will be made public in the London Gazette.
Furthermore, bankruptcy will remain on your credit file for six years, which can affect your eligibility for certain financial services, from applying for a loan to opening a bank account.
Let's consider some approaches you could take towards banking whilst bankrupt that may help you improve your financial security.
Bankruptcy & banking: what are my options?
Banking for bankrupts isn't always easy. If you've applied for a bank account in the past whilst bankrupt, you may have been turned down as a result.
However, some bank account providers offer accounts designed specifically for people who are bankrupt, or have been in the past. Opening one of these could help you to budget and manage all your financial commitments once again.
It's important to take some time to research what bank accounts designed for bankrupts are available, and what the best option may be for you.
You could think about:
1. choosing a 'budgeting' account, which could help you to budget for all your essential expenses every month
2. finding an account that's open to people who haven't yet been discharged from bankruptcy
3. registering for internet or telephone banking to help you keep track of your finances wherever you are.