The bankruptcy process can have a significant impact on the lives of those who go through it, particularly on discharged bankrupts. However, while the discharge may provide a sense of relief, it does not necessarily mean that all the challenges are over.
In fact, discharged bankrupts may still face ongoing restrictions that affect many aspects of their daily lives, not just their finances.
What is bankruptcy?
Bankruptcy is a legal process that provides relief to individuals and businesses who are unable to pay their debts as they fall due. It is a formal declaration of insolvency that is filed in court and can result in the discharge of certain debts.
The bankruptcy process is overseen by a trustee who manages the debtor’s money and assets and distributes them to the people you owe money to (your creditors). Most bankruptcies last 12 months, but they can be extended under certain circumstances.
During a bankruptcy order, you usually won’t have to make any debt repayments and your creditors won’t be able to contact you or take legal action against you.
Failure to cooperate with your trustee can result in your bankruptcy being suspended indefinitely or extended beyond the standard 12 months.
In short, a bankruptcy agreement is a negotiated agreement between you and your creditors outlining how you will pay back your debts.
How much debt do you have?
How does bankruptcy work?
Bankruptcy is a legal process that allows individuals to deal with unmanageable debt. Here are the six main steps typically involved in the bankruptcy process in the UK:
1. Seek debt advice
Before applying for bankruptcy, you should seek professional debt advice to ensure you’re making the right decision.
It’s important to seek debt advice from a reputable organisation or professional and explore all debt relief options available to you before deciding on bankruptcy.
2. Complete bankruptcy application
If bankruptcy is considered to be the best option for you, individuals must complete a bankruptcy application form and pay a fee of £680.
The application form requires detailed information about your financial situation, including your assets, debts, and income.
3. Submit application to the Insolvency Service
Once the application is completed, it must be submitted to an Official Receiver (OR) at the Insolvency Service, who will review it and make a final decision.
The Insolvency Service will assess your details to ensure you meet the eligibility criteria for bankruptcy and issue a bankruptcy order if approved.
4. Wait for the bankruptcy order to be made
If the Insolvency Service approves your application, a bankruptcy order will be made, and a trustee will be appointed for you.
Once the bankruptcy order is made, your assets will be frozen and your creditors will be notified that the bankruptcy process has begun.
5. Co-operate with your trustee
The trustee will investigate your debts and financial affairs. During this process, you must work with them and provide all information requested from you.
They will also take control of your assets, which may be sold to repay some of the debts owed. If you have a mortgage or debt secured on your home, you’ll need to continue paying this as normal.
6. Discharge from bankruptcy
There are two main ways to be discharged from bankruptcy: automatic discharge, which occurs after one year, or discharge on a specific discharge date, which can be earlier or later than one year, depending on the circumstances.
Once discharged, most debts are written off. However, some debts, such as court fines and student loans, are not. It’s also worth noting that while rent arrears can be included in a bankruptcy, your landlord can still take action to evict you at any point if they wish.
Will details of my bankruptcy be publicly available anywhere?
Yes, details of your bankruptcy will be publicly available in a number of places, such as:
Individual Insolvency Register
The Insolvency Service in the UK maintains a public register of bankruptcies, which includes the name and address of the bankrupt, the date the bankruptcy order was made, and the name of the appointed trustee.
This register can be accessed by anyone who knows your name or trading name, but is usually only used by people or organisations with a reason to check your credit history, such as lenders, landlords, and employers.
Credit reference agencies
The main credit reference agencies (Experian, TransUnion, and Equifax) will also be notified of your bankruptcy. They will include this information in your credit report for a period of six years.
Any information on your credit record will be available to lenders or other organisations that perform credit checks, and it can affect your ability to obtain credit or other financial services in the future.
The Gazette
Your bankruptcy will be advertised on the Gazette website, which is a type of specialist financial newspaper run by the government.
It only publishes legal notices and bankruptcies, meaning it’s highly unlikely that a friend, family member, or colleague will ever stumble upon your entry in it.
What kind of bankruptcy restrictions will I be under during the process?
During bankruptcy, there are several restrictions that individuals must adhere to. Here are some of the main restrictions that will apply:
Ability to obtain credit
While bankrupt, individuals cannot obtain credit of more than £500 without disclosing their bankruptcy status to the lender. This may make it challenging to obtain a credit card, loan, or mortgage during the bankruptcy period.
Ability to act as a company director
Individuals who are bankrupt are generally not allowed to act as a company director or take part in the management of a company without the court’s permission. This restriction can last for the duration of the bankruptcy and may have implications for individuals who own or run a business.
Ability to open a bank account
It may be difficult for individuals to open a bank account during bankruptcy, as some banks may outright refuse to do so. However, individuals should be entitled to a basic bank account if it doesn’t have an overdraft facility.
Travel restrictions
During bankruptcy, individuals must seek permission from their trustee to travel abroad and any unnecessary expenses are likely to be scrutinised. Failure to inform your trustee of any travel plans can be considered a breach of the bankruptcy order and it may be revoked as a result.
Asset restrictions
Depending on the individual’s circumstances, there may also be restrictions on the types of assets you can own or acquire during bankruptcy, such as expensive vehicles or property. You may also be required to make payments towards your debts from your income or assets during the bankruptcy period if you earn over a certain amount.
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What happens after I have been discharged automatically from bankruptcy?
Once you’ve been discharged, all the included debts will be written off and the bankruptcy order should be automatically removed from the Insolvency Register within three months.
It’s also worth noting that your credit file will only show the last six years’ worth of information. Therefore, any evidence of the bankruptcy will no longer be visible once six years have passed.
You can apply for a confirmation letter to prove you’ve been discharged from your bankruptcy order (known as a discharge certificate), but they are not automatically issued unless you specifically request one. You’ll need to provide your date of birth, current and previous addresses, and full name when applying.
If you’re self-employed or you’re planning to become a sole trader after post-bankruptcy, you must use the same name that the bankruptcy order was made in and use that name in all business correspondence going forward.
Do discharged bankrupts face any ongoing restrictions?
Discharged bankrupts may still face some ongoing restrictions after their bankruptcy ends. Here are some examples of situations where you might experience ongoing restrictions:
Income Payments Agreement (IPA)
If an individual has money left each month after living costs, they may be asked to make regular income payments to their creditors for a maximum of three years under an Income Payments Agreement (IPA).
An IPA can start at any point during a bankruptcy agreement. This means that, if an IPA is put in place just before you’re due to be discharged, you could end up making payments for another three years after exiting the arrangement.
Income Payments Order (IPO)
If you don’t agree with an IPA or fail to comply, you might be issued with an Income Payments Order (IPO). The court will determine a reasonable amount for an IPO. If you have a salary, they might take money directly from your wages.
However, an IPO is rare and won’t happen if it would leave you without enough money to meet your essential needs.
Bankruptcy Restrictions Order (BRO)
If an individual has acted dishonestly or irresponsibly during their bankruptcy, a Bankruptcy Restrictions Order (BRO) may be made against them.
A BRO can last for up to 15 years and can impose restrictions similar to those during bankruptcy, such as being prohibited from acting as a company director or borrowing more than £500 without disclosing their bankruptcy status.
Bankruptcy Restriction Undertaking (BRU)
Similar to a BRO, a Bankruptcy Restriction Undertaking (BRU) is a voluntary agreement made by the individual to comply with certain restrictions for up to 15 years after discharge. A BRU can be an alternative to a BRO and is generally considered less severe as it does not require a court order.
It’s important for discharged bankrupts to understand their ongoing restrictions and obligations to avoid any potential legal consequences or negative impacts on their finances.
Do I have to disclose bankruptcy after I’ve been discharged?
If a lender asks, “Have you ever been declared bankrupt?”, you will need to answer the question truthfully. Some forms have a declaration at the end, which you must sign to state that the information you provided is accurate.
Generally, you don’t have to disclose an old bankruptcy if you’re not asked. However, if you’re asked if you’ve ever been in a formal insolvency solution, it could be considered a false declaration if you lie about ever being bankrupt.
Similarly, if you’re asked if you’ve been bankrupt in the last six years and your bankruptcy ended more than six years ago, you can safely respond ‘no’ as it should no longer have an impact on your credit.
Some professional memberships or licences have a requirement to prove you are a “fit and proper person”. This could appear on an application for credit and may simply ask if you have ever been subject to bankruptcy.
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Can I apply for a mortgage after being discharged?
The fact that you have recently been bankrupt may make it more difficult for you to ge approved for a new property by a mortgage lender, but it’s certainly not impossible.
In any case, you’ll need to prove that you’re a responsible borrower capable of managing monthly payments before you can qualify for a mortgage. This might require you to spend a few years improving your finances and rebuilding your credit score after you’ve been discharged.
Post-bankruptcy, focus on consistently meeting all of your monthly payments and avoiding further borrowing at all costs.
Remember, your bankruptcy will stay on your credit file for six years. Most financial advisors would recommend waiting until the bankruptcy is no longer on your credit file before applying such a serious financial commitment as a mortgage.
How do I find a record of my past bankruptcies?
If you can not find any record of past bankruptcies online, you can do the following:
- Contact the court that issued the bankruptcy: It is very likely that the court in which you were declared bankrupt will have a copy of the bankruptcy order archived which should be available on request.
- Speak to credit reference agencies: You can contact any of the three credit agencies and request a copy of your details to see if your creditors are still reporting any information about debts owed or if there have been any court actions within the last six years.
- Contact included creditors directly: You can contact the creditors included in the bankruptcy directly and ask for any information they still hold about your debts.
Can I get a loan after being discharged from bankruptcy?
During the six-year period that the bankruptcy is still visible on your credit file, you will find it difficult to get approved for most types of credit, including a loan.
Since bankruptcy affects your credit rating, you may also find that you will only qualify for a higher interest rate or a lower credit limit and, in some cases, you may be refused credit altogether.
There is no universal answer to whether you will be approved for a loan after bankruptcy. The final decision comes down to your overall financial behaviour, how you behaved during the bankruptcy order, and how long it’s been since you were discharged.
You might also have more luck with a specialist lender who specialises in lending to individuals with past bankruptcies or less-than-perfect credit histories. They usually provide more flexibility to suit your circumstances.
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I was discharged from bankruptcy, do I still need to pay my debts?
After a bankruptcy discharge, you will no longer be asked to pay any of the bankruptcy debts. However, some debts are only paused during bankruptcy and will still require payment after your bankruptcy order has ended.
These debts are called ‘liable’ debts. They include student loans, court fines, child support payments, debts owed as a result of a personal injury claim against you, debts accrued through fraud, lump sum orders from family or friends, and any debts created after the bankruptcy order was made.
Conclusion
Bankruptcy is a formal insolvency solution that can help you deal with the debts you can’t afford to pay. It should only be considered after other less serious solutions have been ruled out.
If you’ve met all the conditions and cooperated with your trustee for 12 months, you should be discharged from the debts included in your bankruptcy. This means that you won’t be asked to pay them anymore.
After you’ve been discharged from your bankruptcy, you’ll need to resume payments on other debts like court fines and student loans.
