A common misunderstanding is that somebody can go to jail for not repaying their debt. This is not true. You will never be sent to prison for failing to pay your debt.
99.9% of people contacting Debt Support Trust will have borrowed money and experienced a change of circumstances (loss of employment, marital breakdown etc) or over committed themselves on credit, over a long period of time.
Going to Jail for Debt
There are times when you can be sent to jail and it’s because of a matter surrounding your debt. For instance, if you fraudulently obtain credit you are breaking the law and could be sentenced to jail for fraud, but not for the debt. If you spend lots of money quickly and have no intention of repaying the debt then a judge can decide that this is fraud.
You can be sentenced to prison for ignoring the rules which surround bankruptcy. This can be as simple as refusing to let the Official Receiver in bankruptcy know about all of your assets or trying to set up another company.
Recently in the press a man was sentenced to nine months in prison because he set up a new company and spent thousands of pounds on personal items when it should have gone into his bankruptcy. This deliberate decision to ignore the bankruptcy rules meant he was breaking a court order. If you decide to enter bankruptcy it’s essential you follow the Official Receiver’s demands.
Other common misconceptions about Bankruptcy
There are a few common misconceptions about bankruptcy which confuse people. Some of these are:
- You will only lose your property in bankruptcy if there is equity available for the creditors. For instance if the secured debt on the property is £120,000 and the property is worth £100,000 then the property is in negative equity. You must still maintain payments to your mortgage whilst in bankruptcy or you will lose your home.
- Bankruptcy lasts for 1 year but if you are in employment you will likely have to make a contribution towards your bankruptcy for 3 years. This is called an Income Payment Order. The amount of the Income Payment Order is decided by your court appointed Official Receiver.
- You have to pay to go bankrupt. As at today’s date, the cost to enter bankruptcy is £700. If your debt is below £15,000 and you meet the rest of the criteria you could enter a Debt Relief Order which is £90.
- You can never get credit again. People who exit bankruptcy will experience difficulty in applying for credit but your credit file can be repaired over time. The trick is to borrow money carefully and repay it in full and on time, every time.