Friday, 14 June 2013

Bankruptcy - it's not the end of the world you know

I know. I've been there.

Let me tell you what happened.

First some background.

I would like to say I lived a wild, extravagant lifestyle with yachts, houses and diamonds but that wasn't the case.  It was far more mundane than that.

Almost 10 years ago I went through my first redundancy.  It was a bit of a blow but I got a reasonable pay-out and cleared nearly all of my debts.  At the same time, I had to move house so ended up putting quite a bit of money onto credit cards and taking a bank loan because I wasn't working (yes, the bank happily threw £25k at me with no income whatsoever coming in - no I didn't lie about it, I told them I wasn't working but I had been a 'great customer').  I could live for a while until I found another job and then, when I was earning a proper salary again, I would pay it all off.  Simple.

Not.

After almost a year and racking up the credit cards even further after the last of my redundancy money had gone (how else was I going to pay the loan?), I got a job.  It was in IT sales.  It was paying almost £20k per year less than I had been on.  Not good.  However, there was commission.  Good.  It was not a big percentage. Not good.  But, I was working so I could begin to pay the debts off, which I did.

After working for the company for just over a year, I was headhunted.  I moved jobs and ended up on a better salary with a superb commission structure that would effectively double my money.  First quarter ended and I received an impressive almost £9k commission after tax.  This was the life!  Then the management changed. With that they wanted to change the contracts too - it seems that Chinese feel free to alter whatever they like.  The job went down the pan and within another year, commission dried up, sales fell away and I was made redundant again.  This time I only got a month's money.

I found a new role within a few months this time but sadly it was far less money and so the spiral continued.  The debts were just about being paid each month, the interest was crippling me and I was working pretty much for nothing by repaying creditors.  I was also feeling pretty low about it all.  I went to a free credit management service (CCCS, now called StepChange) to help me.  They sorted out a Debt Management Plan (DMP) in 2006 and I started to pay my debts off at around £500 per month. It took almost a year of horrible phone calls, letters and constant arguing with my creditors but they all finally stopped charging interest.  Some debts were sold on to other debt companies and the letters and calls started all over again but eventually, it all settled down (a lot to do with changing my mobile and home numbers and only allowing them to contact me by post as I was not prepared to be stressed daily or receive hassling calls at 9pm at night).  Yes, I know I was in debt but I really was trying to do something about it and many of these companies clearly employed kids who read a script. The times I was asked to borrow money from "family or friends" was incredible.  Clearly I never even considered such a ridiculous suggestion.

A few times CCCS suggested I went bankrupt but the thought of that terrified me.  I had heard and read horror stories of Bailiffs coming into your house and taking everything, even down to silly things like CDs, to sell for pennies.  I had the image of sitting on the floor in a barren house with nothing but my duvet.  I think I was more scared of losing my gorgeous SAAB convertible (bonkers I know) than anything else.  If I knew then what I know now, I'd have done it in an instant.

In 2008 I had my 2nd daughter and stopped work.  The amount I was paying under the DMP went down to around £150 per month (mostly my child benefit money, some income from my self-employment and some savings).  In 2010 I had my 3rd daughter and the amount dropped then to around £50 per month.  All this was agreed via CCCS with the creditors but now I was looking at some of my debts that would take around 100 years to pay off!  Clearly that was never going to happen.

I had been concerned for a long time about trying to pay my creditors back but I had begun to get a bit of a 'who gives a f**k' attitude as the economy was tightening and I was hearing more about poor lending choices and the likes of the banks pulling the rug from under people's feet with no regard for making a family homeless or pushing someone to the brink of suicide.  Doorstep lending was on the increase and awful companies were springing up everywhere with their 7000% APR adverts.  Financial horror stories were in the papers almost daily.

At the end of 2011, it was suggested again by CCCS that I consider bankruptcy.  I was in rented accommodation, not about to go back to work or buy a house, had no credit still available to me and really had nothing to lose.  This time I thought about it very seriously indeed.  I discussed it with my husband. At some stage in the future I want to buy a house with him and I didn't want any debt hanging over my head and I certainly didn't want a bunch of credit cards and bank loans paid out of any money I had when I died.  I had another chat with CCCS and they put me on to their bankruptcy team to tell me all about the impact, what I would need to do and what happens.  I read all about bankruptcy on the Government's Insolvency Service website.  I would suggest anyone who is thinking about it also has a good read through as it is not straight-forward if you own property, have pensions about to pay out or are still working.

My husband backed me and the decision was made.

Bankruptcy also does not come for free (ironically enough) and I had to pay £700 to go bankrupt.  As I had no money, it was suggested by CCCS that I sell my car and that way I could buy a new one (up to £2,000 value for work as I was self-employed), get it serviced, MOT'd and insured, pay the bankruptcy fee and keep some cash (£50 each) for buying back my life assurance policies and some money for my old motorbike.  The rest of the money, around £5,000 went into my bank account to be used by the Official Receiver to pay my debts.  My debts were huge.  Really huge.

I went through the very complicated form with the bankruptcy team at CCCS and they were brilliant. The call took almost 2 hours for me to go through every part of that form (most of which I had completed beforehand) and they phoned me I'm pleased to say!  Form ready, I phoned the Court to get a date for the bankruptcy hearing.  They could do it within the week.  I picked a date and that was it.  Ready to go.  I think my stomach stayed in a knot from then until the Court date arrived.

The morning of my hearing came and off I went.  Again, having Googled what would happen, I was terrified that it would be open Court, lots of people in the viewing gallery and maybe someone I knew would be there or the local papers. It was nothing like that (so my advice is to ignore the idiots commenting about such things if you do a search on Google).

I went to the Court office first, paid my fees and had some paperwork stamped and was given a case number. I then went upstairs to wait to see the Judge.  The hearing was to be done in his chambers.  It was a nervous 20 minute wait and then I was called in by the Usher who was this wonderful older gentleman who could see I was nervous and reassured me that the Judge was lovely and lots of people go through this. It was February 2012 and I was already bankruptcy case number 56 for my local Court!

In I went to the Judge who was very kind and understanding. He even produced a box of tissues when I began to cry.  It really hit me at that point what a mess my life had become financially.  He chatted through my financial document and said that as far as he could see this really was the best course of action for me. He checked that I knew what it meant to be bankrupt and then he agreed it all and signed the Order.  He assured me that he's known many people who have found that bankruptcy has been the most efficient course of action to clear their debts and have gone on to own property and businesses.  I appreciated his words.

I went back to the Court office and sat down for another 15 minutes or so to wait while my bankruptcy order was typed up.  I received two copies and details of the Official Receiver and told to call them.  I left Court a bankrupt but somehow a weight had lifted off of me.  All my accounts were frozen instantly.  Fortunately I had been warned this would happen by CCCS and on the morning of the Court hearing had drawn some money out to live on as they can be frozen for up to 14 days.  However, you have to write down the cash you have in a box on the form which you can only do on the day of the hearing.

How different was my life going to be now it was under the magnifying glass?

I phoned the Official Receiver (OR) and told them that I had just been made bankrupt. They didn't have anything on their system yet and suggested I call later that day, which I did. They then said they would send me an information pack out in the post and someone from their office would be in touch to arrange a telephone interview with me.

The pack arrived the next day and contained all of the information I had to send to the OR.  Bank accounts, creditor statements, tenancy agreement, proof of sale of vehicle and purchase of new one, life assurance policies, etc.  I spent that day bundling it all up and sending it off by recorded delivery to the OR's office.

The next day I received a letter advising me of a date and time that one of the OR's staff would speak to me about my bankruptcy.  It was in 10 days time and I arranged for hubby to be off work so he could look after the girls and I had time to talk without being interrupted.

The day arrived and the OR's lady called.  She went through my bankruptcy document with me confirming matters and reading my statements and additional information.  As I was self-employed, I was allowed to keep the car (they can take it if you don't need it for work) and it was made exempt from the bankruptcy.  I had to wait for her to get confirmation on my life assurance policies to see if there was any surrender value (there wasn't) and then I could buy them back for the £50 each.  The same with my pension.  That was done within the next two weeks.  My husband also bought my old (non-working) motorbike from me for £50.

The OR's lady said she would write to all my creditors and say I was bankrupt but if I heard anything further from any of them, to refer them to her or simply send them a copy of the bankruptcy.  Two began to act in  a ridiculous fashion, sending demands repeatedly, but finally they got the message (from her I'm pleased to say).

So, what was the year of bankruptcy like?  Honestly?  It was easy.  It also flew by.  Once all the paperwork had been dealt with, I heard nothing from the OR again.  In February this year, I was discharged, exactly one year to the minute after I had been made bankrupt. It showed up on my credit file instantly.

My credit file is excellent by the way.  My creditors marked all my debts as 'satisfied' and most will vanish off the file by the middle of next year anyway as they stay for 6 years after the noted default date so that isn't a problem.

The bankruptcy itself stays on file for 6 years from date of discharge. It will take us that long to save a deposit for a house in this economy!  Buying a house can be a problem in the first 2 years after discharge (if you wanted to buy, you may need to find specialist brokers and it might cost you quite a high percentage compared to High Street lenders) but after that point, almost all mortgages are open to you (except Santander who will never lend to a discharged bankrupt - no matter how long ago it was).

I'm debt free. I obtained the first credit card I applied for.  No, worry not, it's to rebuild my credit worthiness (not my credit rating which is fab ironically enough) and I will use it to buy little bits now and again and pay it straight off.

Will I ever get into debt again? No.

For over 6 years now hubby and I have lived on what is in our bank accounts. We have no credit cards, overdrafts or loans and we have done very nicely thank you.  I have no intention of ever getting back into debt again - with the exception of a mortgage.  If we can't afford it - we don't have it. It's that simple.  Living within your means is a pretty good way to go.

So, if you are worried by debt and seriously considering bankruptcy, take advice and try not to be too scared about it.  It probably isn't as bad as you imagine it will be.

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