Before you make the decision to go Bankrupt you must take time to understand how it will affect you based on your personal situation.

It will affect different people in different ways so if you know someone who has already been through the process how they were affected by it may be very different to the experience you will have.

This article focuses on some of the main affects that this debt solution will have and explains how these might affect you personally.

1. The affect of Bankruptcy on your debt

One of the key advantages of Bankruptcy is that it takes away your responsibility for paying your unsecured debts. These are things like bank loans, credit cards, store cards and even tax arrears to HMRC.

The official receiver will review your income and living expenses and decide whether you can afford to make payments towards your debt. If so then you will be expected to pay this amount for three years. After this time your payments will stop and any unpaid debt is written off.

It is important to understand that any secured debts that you are not included. As such you must still pay debts such as your mortgage, any secured loans and car finance.

2. The affect of Bankruptcy on your home

If you are a home owner Bankruptcy could have very serious consequences for you. If there is equity in your property you need to understand that the official receiver ultimately has the right to sell your home to release your share so that it can be used to repay your creditors.

If you have little or no equity then you may well be able to keep your property. However the official receiver is likely to put a charge on it for the value of your share of the equity so that when you do eventually sell some money will be returned to your creditors.

If you are renting your property then you have less to worry about. However you need to understand that your landlord could be told you have been declared bankrupt. You may therefore need to warn them in advance to avoid them becoming worried especially if you are renting through a private landlord.

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3. The affect Bankruptcy on your credit rating

Bankruptcy will have a seriously negative affect on your credit rating. As soon as you are declared Bankrupt this will be recorded on your credit file and remain there 6 years.

During this time if anyone carries out a credit check on you they will discover your situation and this will normally mean that they will be reluctant to lend to you.

However this does not mean that you will never be able to borrow again. If once you are discharged if you are hoping to get a mortgage and buy a house you may be able to do so long before the end of six years. However it is likely that at first you will have to take a subprime mortgage which will come with a higher than average interest rate.

4. The affect of Bankruptcy on your car

You can have a car if you go Bankrupt. However you must have a good reason to keep one and generally it cannot be worth more than £1000.

If you need a car to get to work or you have a disability and need a car, this would be a reasonable justification to keep it. However if you have a car purely because it is convenient then there is a risk that the official receiver will ask you to sell it.

Even if you are allowed to keep a car if it is worth more than £1000 you may have to sell the car and buy a cheaper one. The difference is then paid to the official receiver. Alternatively if a friend or family member could buy your car from you and lend it back to you thus enabling you to keep it.

5. The affect of Bankruptcy on your job

Generally speaking your job will not normally be affected if you declare yourself Bankrupt. Your employer will not be told and there will be no reason for your job to be effected at all.

Having said that here are some jobs that might be effected. These include working for the police, military or some financial services positions. In addition you will not be able to continue to act as a company director.

If you are concerned that your job might be affected by bankruptcy you should make sure you get advice before starting the application process.