The bankruptcy process can have a significant impact on the lives of those who go through it, particularly on discharged bankrupts. While the discharge may provide a sense of relief, it does not necessarily mean that all the challenges are over.
Discharged bankrupts may still face ongoing restrictions that affect their finances and daily lives. In this article, we’ll explore what happens after the bankruptcy discharge and what discharged bankrupts should be aware of when it comes to ongoing restrictions.
What is bankruptcy?
Bankruptcy is a legal process that provides relief to individuals and businesses who are unable to repay their debts. It is a formal declaration of insolvency that is filed in court and can result in the discharge of certain debts or the reorganisation of debt repayment.
The bankruptcy process involves a trustee who manages the debtor’s assets and distributes them to creditors according to the priority of their claims.
A bankruptcy agreement is a negotiated agreement between a debtor and their creditors outlining how the debtor will pay back their debts. Money owed is the amount of debt that a debtor owes to their creditors, which may be addressed through the bankruptcy process.
How does bankruptcy work?
Bankruptcy in the UK is a legal process that allows individuals or businesses to deal with unmanageable debt. Here are the six main steps of the UK bankruptcy process:
Seek debt advice
Before applying for bankruptcy, individuals should seek debt advice from a reputable organisation or professional.
It is important to seek debt advice from a reputable organisation or professional to explore all debt relief options before deciding on bankruptcy.
Complete bankruptcy application
If bankruptcy is the best option, individuals must complete a bankruptcy application form and pay a fee.
The bankruptcy application form requires detailed information about an individual’s financial situation, including their assets, debts, and income.
Submit application to the Insolvency Service
Once the application is completed, it must be submitted to the Insolvency Service, who will review it and make a decision.
The Insolvency Service will review the application to ensure it meets the eligibility criteria for bankruptcy and will then issue a bankruptcy order if approved.
Wait for the Bankruptcy Order to be made
If the Insolvency Service approves the application, a bankruptcy order will be made, and a trustee or official receiver will be appointed.
Once the bankruptcy order is made, the individual’s assets will be frozen, and their creditors will be notified of the bankruptcy.
Co-operate with the Official Receiver or Trustee
The trustee or official receiver will investigate the individual’s assets, debts, and financial affairs. The individual must cooperate with them and provide all requested information.
The trustee or official receiver will take control of the individual’s assets and may sell them to repay some of the debts owed. The individual must cooperate with them and provide all requested information.
Discharge from Bankruptcy
There are two 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, but some debts, such as court fines and student loans, are not.
Will my details of my bankruptcy be publicly available anywhere?
Yes, details of your bankruptcy will be publicly available in certain circumstances.
Insolvency Service Register
The Insolvency Service in the UK maintains a public register of bankruptcies, which includes the name and address of the bankrupt, the date of the bankruptcy order, and the name of the appointed trustee or official receiver. This register can be accessed by anyone for a fee.
Credit reference agencies
In addition, credit reference agencies will also be notified of your bankruptcy and will include this information in your credit report for a period of six years from the date of discharge.
Any information on your credit record may 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.
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 over £500 without disclosing their bankruptcy status to the lender. This may make it challenging to obtain credit cards, loans, or mortgages 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 refuse to do so. However, individuals are entitled to a basic bank account, which does not have an overdraft facility.
During bankruptcy, individuals must seek permission from their trustee to travel abroad. Failure to do so can be considered a breach of the bankruptcy order.
Depending on the individual’s circumstances, they may also have restrictions on the types of assets they can own or acquire during bankruptcy, such as expensive vehicles or property.
They may also be required to make payments towards their debts from their income or assets during the bankruptcy period.
What happens after I have been discharged from bankruptcy?
Once you are discharged, all your debts will be written off. The bankruptcy order will be removed from the Individual Insolvency Register, this is usually within 3 months of the date of discharge.
Your credit reference agency file will only show 6 years worth of information so the notice of the bankruptcy taking place will be stopped after 6 years of discharge.
You can also apply for a certificate of discharge, which costs approximately £60, from the Official Receiver (OR). They are not automatically issued unless requested.
Do discharged bankrupts face any ongoing restrictions?
Discharged bankrupts may still face some ongoing restrictions after their bankruptcy has ended. Here are three examples of ongoing restrictions:
Income Payments Agreement
If an individual’s income is above a certain threshold, they may be required to make income payments to their creditors for up to three years after discharge. This is called an Income Payments Agreement (IPA) or Income Payments Order (IPO).
Bankruptcy Restrictions Order (BRO)
In some cases, 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 can be 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.
Disclosing bankruptcy after being discharged
If you are being asked the question “Have you ever been declared bankrupt?” then you will need to answer the question truthfully. Some forms have a declaration at the end which you must sign to state the information you provided is accurate.
If you have any questions about why this information is deemed necessary, you should ask the company asking the question. You may also be able to decline to answer the question.
Please note, your bankruptcy may no longer be showing on the Insolvency Register. Unless restrictions were placed or an error has occurred.
It could be that the Bankruptcy could still be traced by contacting the Insolvency Service. Or by checking the London Gazette or local press records. Therefore it is always important to be truthful on any application.
Do I have to declare bankruptcy after 6 years?
After you are discharged from bankruptcy there is no legislation saying you have to declare this in the future. You are however legally obliged to disclose your bankruptcy if directly asked. Especially if you want to work in the financial or legal sector (read our article: Does bankruptcy affect your employment).
Professional membership or licence may have a requirement to prove you are a “fit and proper person”. There may be a question about bankruptcy within the application. It could appear on an application for credit and may simply ask have you ever been subject to bankruptcy.
Can I apply for a mortgage after being discharged?
The fact that you have gone bankrupt may make it more difficult for you to get a mortgage, however, it should not be impossible. You’ll need to show you can borrow responsibly to do this by managing your current account and possibly a credit card (normally a high APR one).
If you pay back all of your borrowing every month and show you can consistently make mortgage payments, you should be OK. Your bankruptcy will stay on your credit file for 6 years. You may also want to consider getting a mortgage after 6 years.
How do I find a record of my past bankruptcies?
If you can not find any record of past bankruptcies online on the Insolvency website register, you can do the following:
- Contact the County Court: It is likely that the County 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 the credit reference agencies and request a copy of your details and see if your creditors are still reporting any information about debts owed, or if there have been any court actions within the last 6 years.
- Contact Creditors directly: You can contact the creditors directly and ask for any information they still hold about your debts
Please note, the bankruptcy record is removed from the Insolvency Register three months after discharge. Six years after the bankruptcy date it will be removed from your credit record.
Loans after being discharged
During the 6 year period after you’ve been discharged, you will find it difficult to get loans or credit. Since bankruptcy affects your credit rating, you may find that you will be charged a higher interest rate and could be refused credit.
In some situations, it may not cause any problems. For example applying for a Motability car scheme, as a credit check is not necessary for the assessment of eligibility for a Motability vehicle. For more information please see our article on loan management.
I was discharged from bankruptcy, do I need to pay my debt?
An old unsecured debt from a previous bankruptcy will be included in your current bankruptcy. After a bankruptcy discharge, you will no longer be asked to pay any debt owed. You could provide details of the bankruptcy to the debt collection agency and ask that they contact the OR who dealt with your bankruptcy.
Some debts, such as court fines and student loans, will survive bankruptcy and will still require payment after bankruptcy has ended, they will never be written off and an arrangement to pay may be necessary.