If your level of debt has become unmanageable, then you may be considering all options available. One of those options is bankruptcy. It’s a process that allows you to clear your debts and start again. However, it’s also a big financial step that has ramifications that last years into the future.
We’re here to break down how long bankruptcy lasts and what the implications are further down the road.
As a side note, if you are struggling with debt, it could help to seek expert advice from non-profit debt counselling services such as the StepChange debt charity and the Citizens Advice Bureau.
How long does bankruptcy last?
Bankruptcy is a legal status that lasts for 12 months. Once you reach the 12-month point, you will be discharged. However, you may experience the effects of your bankruptcy for a total of six years.
Discharge happens even if no payments have been made to your creditors, some of your assets haven’t been sold yet or you’re still paying an income payment arrangement (IPA) – where any leftover monthly income is used towards paying your debts and the cost of administering your bankruptcy.
However, being discharged at the 12-month point will depend on how cooperative you’ve been with the official receiver. An official receiver works for the Insolvency Service and is attached to the court. They will act as the trustee during the bankruptcy process, unless an insolvency practitioner is appointed to take that role. If you are deemed to be uncooperative or dishonest during the bankruptcy term, the official receiver can delay your discharge.
What changes when my bankruptcy is discharged?
Once your bankruptcy is discharged, you will be free of your debts. However, there are some exceptions:
- Debts gained by fraud
- Money owed under family proceedings
- Damages payable to anyone for personal injuries
- Student loans
- Court fines
- Debts created after the bankruptcy order
You may also find that the value of assets you own when you are declared bankrupt will still be used to repay debts after this point. For example, the official receiver has up to three years to decide what to do with the equity in your property.
One key change that comes with your bankruptcy being discharged is that you can borrow more than £500 without having to tell the lender about your bankruptcy. Just remember, though, that if a lender conducts a credit check, it will still appear on your credit report for six years after being discharged.
Another change is that you will be eligible to become a company director again if you so wish.
What’s the timeline after my bankruptcy is discharged?
While you may be freed from bankruptcy after 12 months, that doesn’t mean that the whole process is instantly over. Here is what you can expect further down your bankruptcy timeline:
After 15 months – Three months after discharge, details of your bankruptcy are removed from the public Individual Insolvency Register (IIR). However, as mentioned above, if the official receiver finds you have acted dishonestly or irresponsibly, they may apply for a bankruptcy restriction undertaking (BRU), which means that your bankruptcy could stay in place for longer.
After two years and three months – One important thing to understand is that while you are discharged from your bankruptcy during this period, assets that you had during your bankruptcy can still be used to pay debts. One of those key assets is equity in your home. The official receiver has two years and three months from the date of your bankruptcy application to approve what should be done in regard to any equity you have in your home.
After three years – This is the deadline for your official receiver or trustee to finish dealing with any equity in your property. The process that started when your bankruptcy application was made should all be wrapped up by this point in time. Also around this time, any income payment arrangements (IPAs) will come to an end.
After six years – At the six year mark, details of your bankruptcy are removed from your credit file. However, even after the details are removed, lenders can still ask if you have ever been bankrupt. This may affect their decision on whether or not to lend you money.
