Why there’s no real stigma about personal insolvency

Why there’s no real stigma about personal insolvency

September 28, 2022

With the economic climate as it has been over the last few years, it is no surprise that there are plenty of people struggling with debts. However, there is still too much of a stigma about going into an Individual Voluntary Arrangement (IVA), filing for bankruptcy or taking advantage of one of the many options for re-setting out finances and we want to quash that stigma.

It’s a significant decision to make, but these options are around for a reason. Too many people worry about the reaction of family, friends, acquaintances and work colleagues or the effect on their credit rating and other aspects of their life; but we know that this decision isn’t taken lightly and people have tried hard to resolve the challenges before going down this route. Of course there are outcomes which you need to be aware of, but ending your crippling money worries really is worth it in so many ways. If you do an actual cost-benefit analysis, you will discover what 125,385 Brits found out in the year to June 2022 according to the Office for National Statistics:  there is no shame in personal insolvency, just relief and a new start in your financial life.

Social stigma concerns – will ‘everyone’ actually know?

This side does not affect your finances in any way. It only relates to how people view you. So, if you are a person who is very concerned with what people think of you, the potential social stigma may matter greatly. However, you should be aware that although all of your creditors will hear about your personal insolvency, it is highly unlikely that anybody else will unless you choose to tell them.

Although a personal insolvency is a public matter, almost nobody except certain financial institutions and the worst sort of busybody has the time or the inclination to go looking to see who has gone down this very sensible route. Even if people do find out about your insolvency, you may be surprised how understanding they may be, particularly in such troubled economic times as this.

You may even discover that some of your friends or family members have also declared themselves insolvent. The awful financial prospects for the coming winter and beyond with inflation out of control and the worst cost of living crisis in decades means that you will definitely not be on your own.

It’s common to feel emotional relief mixed with guilt

The other aspect is the emotional side. Many people feel bad when they can’t pay their bills. So when you file for insolvency and stop paying many of your bills entirely or only a part of them, you may feel very guilty. This reaction suggests that you are a highly responsible person, but in most cases, people have no choice about their insolvency, which is likely to be outside your control or through no fault of your own. This aspect of the perceived stigma is a purely internal and personal issue, which you can and will process with time.

How will this affect your financial position?

The financial impacts associated with personal insolvency are the aspect that affects many people most. Your credit score will be affected, so that getting credit will be more difficult and will be more expensive. If you go down the bankruptcy route, it will remain on your record with credit agencies for six years. With an IVA, your record should be clear within a year after its completion.

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Managing your credit rating during and after personal insolvency

But if you’re careful, it won’t stay that way for long, as you rebuild your financial life. Here are some steps you can take.

In the short term:

  • Order a copy of your statutory credit report from one of the main credit reference agencies to ensure your credit details are correct
  • Add a short statement to your report explaining why you got into debt (e.g. illness, redundancy, family break up)
  • Register for the electoral roll at your current address
  • Update all personal details (such as addresses) on your credit profile

In the longer term:

It’s important to show lenders that you can borrow money responsibly. You can do this by using and repaying credit. But before you do so, you need to be 100% sure you can afford and meet the repayments:

  • Consider credit designed for people with low credit ratings. This usually means low limits and high interest rates. You may be able to improve your rating by using this type of credit for small purchases (such as groceries) and repaying the money in full and on time.
  • Space out your applications for credit. Each application for credit will leave a mark on your credit report, so aim to apply no more than once every three months.
  • Check your eligibility through one of the credit reference agencies before you apply for credit. Doing this can help you reduce your chances of being rejected and having to make multiple applications.

Moving on after personal insolvency

The financial issues may even have some benefit, as most people are even tighter on managing their finances so that they don’t get into debt all over again once the insolvency is over. Getting into debt is a horrible and devastating experience, getting out of it may not be without some pain and distress but will be worth it in the longer term. We would like to stress that this can happen to people of any level of income. We have seen anything from Directors of larger sized companies that have been impacted by personal guarantees for their business to people who have been impacted by loss of earnings/poor health and are struggling to manage finances to people who have lost the balance between income and outgoings over a length of time.

There are still options for resetting finances as well, but it helps to speak to a professional so that they can independently advise you on the options available, the process and the short/long term impact. It helps to talk, so if you are affected by financial challenges, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.