Being declared bankrupt seems like a daunting prospect, but it doesn’t have to be. Read on if you want to find out about life after bankruptcy discharge.
What is bankruptcy discharge?
After your bankruptcy period, you are released from the restrictions and your debts are cleared. This is known as bankruptcy discharge.
The discharge usually takes place after one year. However, this could be delayed if the Official Receiver suspects that you have not provided all of the necessary information in full. This is known as a ‘delayed discharge’.
What will change after discharge?
Life after discharge is a good opportunity to wipe the slate clean. However, there will be some important changes that you’ll need to be aware of.
There are some debts that cannot be cleared by bankruptcy. You will need to take responsibility for paying these in full.
Such debts include those gained by fraud, maintenance payments, personal injury damages, student loans and court fines.
You will also be responsible for any debts accrued after the bankruptcy.
Your bankruptcy will stay on your credit record for the following six years after declaration.
If you apply for credit, lenders will check your credit score and you could be refused. Even if you are not refused, you may be offered products with less favourable interest rates because you will be considered a high risk.
Even after six years, some financial institutions may ask whether you have ever been declared bankrupt. This is common when applying for a mortgage.
Income payments agreements (IPA)
Being bankrupt, you may have been asked to make regular payments. This is usually based on any spare income you have, which could include your pension if you were receiving one when made bankrupt.
When you enter into an agreement to make these payments, it could last up to three years.
Any assets seized and not used to pay the debts will remain under the control of the court, even after bankruptcy discharge.
You no longer own these assets, and they could be used to pay your debts in the future, even if they are in your possession.
If you own more than £1,000 worth of equity in your home, the Official Receiver can obtain a charging order over the interest in the property.
This order will remain in place for up to three years, during which time the property could be sold. If after three years it remains unsold, it will be transferred back to you.
What should I do once discharged?
After bankruptcy discharge, there are some important steps you should take.
The discharge happens automatically after one year. There is no official letter or confirmation of any kind.
It’s a good idea to obtain proof that you have been discharged. You will need to contact the Insolvency Service and ask for a confirmation letter.
The location of the Insolvency Service you need to contact will depend on where you live. Further information on contacting the Insolvency Service is available on the gov.uk website.
You may also need a Certificate of Discharge – especially if you are applying for a mortgage. This will depend on where you applied for bankruptcy.
If you applied at court, you will need to contact the court and pay the £70 fee (and £10 for each copy). If you applied online, you will need to email the Insolvency Service. There is no fee.
Check all public records
You will need to check the Insolvency Register to make sure your name is removed. This will happen within three months of your discharge.
If your debts have been settled, you can apply to the Land Charges and HM Land Registry to have your bankruptcy entry removed. Further information is available on the gov.uk website.
Work on improving your credit rating
If you had to close your bank account, you will need to open a new one. You should be able to do this, but you will probably have to settle for one with basic functionality.
To improve your credit rating, you will need to adopt good spending habits. In a year or two, apply for a credit card and use it to pay for things such as your food shopping. Make sure you pay the balance off in full every month.
Try to look at your situation as an opportunity for a new start. Consider why you ended up in the situation in the first place.
Identifying the source of the problem is a good first step towards adopting good spending habits and making wise financial decisions.
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