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How bankruptcy affects me

Bankruptcy and insurance

Going bankrupt can affect some insurance policies.

It’s important to check what impact it’ll have before you go bankrupt to make sure you’re still safely covered.

The rules around debt relief orders (DRO) are changing soon. These could benefit those considering an insolvency solution like bankruptcy. Please take a look at the changes, as for some people a DRO will be a cheaper alternative to full bankruptcy.

How will going bankrupt affect my existing insurance policies?

Bankruptcy may cancel some insurance policies, leaving you without cover. This is more likely to happen if you pay for your insurance in monthly instalments.

If you go bankrupt, the cover may be cancelled altogether, or more commonly you may be given a short time – for example two weeks – to pay off the remaining instalments for the rest of the year. If you don’t do this, the cover will then be cancelled.

This could apply to any insurance, but it’s especially important you check:

  • Vehicle insurance – remember it’s against the law to drive if you don’t have a valid insurance policy
  • Building and contents insurance
  • Public liability insurance and any other policies you need if you’re self-employed

Even if you pay for your insurance in full each year, we still recommend checking your policy before you go bankrupt in case there are other conditions which might affect your cover.

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What to do if your insurance is cancelled

If going bankrupt means you’ll have to pay off the rest of the year’s insurance instalments, there are a couple of options:

  1. Go bankrupt now and pay the remaining instalments within the timescale your insurer asks. If the monthly payments are small and there’s not many left, this might be easy. But it’s not very realistic if your monthly payments are high or you have a lot of payments left to make

  2. Delay your bankruptcy until the amount you have to pay to your insurer after bankruptcy becomes affordable. For example, if you have 9 or 10 months left to pay, you may be better waiting to go bankrupt until there’d just be 2 or 3 payments to make to keep the policy

  3. If you no longer need the insurance cover, you could do nothing. This might be possible if it relates to a vehicle which you intend to stop using, or a job you’ll be finishing

Can you get a new insurance policy during bankruptcy?

As bankruptcy lasts for at least 12 months, you’ll need to renew any insurance policies you hold during this time.

Insurers will be aware of your bankruptcy from your credit file, and this may make it harder to get a policy in the future. You may be refused or you may have to pay a higher premium.

Also, if you pay for your insurance by monthly instalments, you’ll have to tell the insurance company about your bankruptcy if the total amount you’ll pay back under the agreement is more than £500. This will apply to a lot of car insurance policies, and not telling them about your bankruptcy would be a criminal offence, even if they don’t ask you.

If the total you’ll pay back is under £500, or if you pay your insurance in a single amount, you only need to tell your insurer about the bankruptcy if they ask.