What are the Consequences of Bankruptcy?

There are a number of consequences to bankruptcy.

• Legal consequence
• Financial consequence
• Business consequence
• Health Consequence
• Family Consequence

Not all are apparent when considering bankruptcy and not all will apply to you. It is certainly worth familiarising yourself so that you can make an informed decision when choosing whether or not to avoid bankruptcy.

If you have any questions about the consequences of bankruptcy then please feel free to ask (ask piggy).

Consequence of Bankruptcy - Legal

Bankruptcy restrictions apply from the moment the bankruptcy order is made and it is a criminal offence to break them. These restrictions will make it difficult, if not impossible, to obtain credit. You will not be able to be a director of a company or hold certain offices. You will also have to inform any people you do business with the name in which you were made bankrupt.

Although, legally speaking you will be able to start a business when bankrupt the restrictions mentioned above will make it very difficult to do so.

Culpable bankrupts can expect the restrictions to be prolonged for between 2 and 15 years. You may be found culpable if you gambled away large sums of money, borrowed when you knew you couldn't repay etc. (see bankruptcy restrictions undertaking for a more extensive list).

Therefore, if you are self-employed or wish to start a business, it may be more suitable to avoid bankruptcy and opt for an IVA.

Consequence of Bankruptcy - Financial

One serious consequence of bankruptcy is that you stand to lose your assets. This includes your home and anything of value.

Further to this, a percentage of your disposable income will be paid to the creditors for a period of three years. It's worth considering this consequence when deciding between bankruptcy and an IVA.

A poor credit rating is a consequence of bankruptcy that will last for a long time after the bankruptcy has finished. This will cost you later down the road. Whilst the bankruptcy may be wiped from your credit report, when you apply for a mortgage you will usually be asked if you have been declared bankrupt before. As a discharged bankrupt it will be more expensive for you to borrow.

Consequence of Bankruptcy - Business

If you are in business, the consequences of bankruptcy become a harsh reality because your business will normally be closed.

You are also subject to legal bankruptcy restrictions, which mean that whilst bankrupt you have to tell people you do business with the name in which you were made bankrupt.

Reputation will also become a factor. The fact that you have been bankrupt may discourage potential associates or damage existing relationships. It will certainly be difficult for you to obtain credit.

Consequence of Bankruptcy - Health

When contending with hassling creditors and putting food on the table, the impact bankruptcy can have on our health it isn't always apparent. This isn't a consequence of bankruptcy that is considered very often.

In many cases it will be one of the most traumatic experiences of someone's life and can cause both mental and physical medical conditions. Examples include:

• Stress
• Depression
• Insomnia
• Paranoia
• Off food
• Heart problems

Financial phobia is a newly defined condition. It is characterised by a fear of managing our finances. Symptoms include an increased heart rate and feeling anxious or physically ill when faced with the prospect of having to manage your money.

Consequence of Bankruptcy - Family

Financial strain alone is enough to break a relationship. The majority of marriages fail as a result of money. Hence, it is safe to assume that bankruptcy is a test for any relationship.

Role redefinition can also take place. If for example the main breadwinner is the person declaring him or herself bankrupt they may now hand that role over to their partner.