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How bankruptcy affects me

Bankruptcy and insurance

Going bankrupt can affect some insurance policies. Check your policy to make sure it still covers you.

A debt relief order (DRO) may be a cheaper alternative to full bankruptcy for some people.

How will going bankrupt affect my existing insurance policies?

Bankruptcy may affect insurance policies in a couple of ways:

1. Your policy could be cancelled

  • This leaves you without cover
  • It is more likely if you make monthly insurance payments

2. You may be given a short time to pay off the instalments for the rest of the year

  • The policy is cancelled if you do not do this

Make sure to check all your insurance policies, particularly:

  • Vehicle insurance
  • It is against the law to drive if you do not have valid insurance
  • Building and contents insurance
  • Public liability insurance
  • And any other policies you need when self-employed

Check your policy even if you pay for your insurance in full each year.

There may be other conditions which affect your cover.

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What to do if your insurance is affected

A couple of things might happen when you go bankrupt.

  • You may need to make the rest of the years' payments at once, or
  • Your policy may be cancelled

You have three options in these cases.

1. Go bankrupt now and make the remaining payments

This can be the best option if:

  • Monthly payments are small, and
  • There are not many left

This may not be best if:

  • Your monthly payments are high or
  • You have a lot of payments left to make

2. Put off bankruptcy

In this case you wait until the amount you need to pay to your insurer is affordable.

For example, wait until you only have 2 or 3 payments left .

3.Do nothing

You could do this if you do not need the insurance cover, like:

  • Car insurance when you plan to get rid of the car or
  • Insurance for a job you are stopping

Can you get a new insurance policy during bankruptcy?

Bankruptcy lasts for at least 12 months. This means you must renew any insurance you have in this time.

Insurers know about your bankruptcy from your credit file.

  • This may make it harder to get a policy
  • You may have to pay more
  • You may be refused

You must tell the insurance company about your bankruptcy if:

  • You pay in monthly instalments
  • The amount you have to pay back is over £500

This applies to a lot of car insurance policies.

  • Not telling them about your bankruptcy is a criminal offence
  • Even if they do not ask you

You only need to tell the insurer about bankruptcy when they ask if:

  • The total you need to pay back is less than £500 or
  • You pay your insurance all at once