The truth about bankruptcy
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Find out what it means when you’re not discharged from bankruptcy.
Starting bankruptcy can be daunting as it affects your finances and your life in a few different ways. But it may be the best way to deal with unmanageable levels of unsecured debts. If a debt advisor agrees that bankruptcy is the right option for you, it could help you get debt free in a relatively short period of time.
While your bankruptcy is ongoing, you might hear the term undischarged bankrupt and not know what this means. Don’t worry – it just means your bankruptcy hasn’t ended yet. Let’s take a look at what this will mean for your finances, and how to get back on your feet after your bankruptcy.
Before your bankruptcy ends
Bankruptcy usually lasts 12 months, though it doesn’t for everyone. During this time, you’ll be an ‘undischarged bankrupt’. This means you’re still going through the process of bankruptcy.
When you’re an undischarged bankrupt, you might have to start paying into an Income Payment Agreement (IPA). You’ll only have to do this if you can afford it, so a debt advisor will go through your income and expenditure to see what money you have left after you’ve covered your essential bills. This is your Disposable Income (DI) and you’ll usually pay this into an IPA for up to three years – so it will continue after your discharge.
There are some guidelines about how much you’re allowed to spend in certain areas of your life so if you’re significantly over one of these amounts, you might be asked to cut back. For example, you won’t be allowed to make an allowance for satellite TV or a costly football season ticket.
Once your bankruptcy is accepted and the bankruptcy order has been made, your payments will be determined by the Official Receiver (OR). This is the person who will manage your bankruptcy and liaise directly between you and your creditors.
Your bankruptcy usually ends exactly 12 months after you first received your bankruptcy order. But not all bankruptcies last 12 months – there can be a delayed discharge. This can happen if you don’t comply with the Official Receiver or Trustee and you might have to fulfil certain conditions before your discharge goes through – for example, you might have to deliver some of your assets for sale or provide some information.
During your bankruptcy, you’ll have to follow some rules. For example, you can’t apply for more than £500 of credit without telling the creditor you’re bankrupt. This is to stop you getting into any further financial difficulties as if you’re already struggling with your debt repayments, any extra credit could just make the situation worse.
It’s also to make it fair to your existing creditors. If you’re paying into your bankruptcy with an Income Payment Agreement (IPA), you wouldn’t be able to take on another credit repayment and pay this back every month in full while your other creditors are accepting a reduced payment. You wouldn’t be able to get an allowance to afford to do this, so you could get a bankruptcy restriction order (BRO). This means the bankruptcy restrictions will last longer, from anywhere between two and 15 years.
There are also certain jobs you can’t do while you’re bankrupt or if you’ve been bankrupt recently. These might include if you work in finance or handle cash as part of your job, if you’re a director of a limited company, if you work in the police or the armed forces or if you’re a pub landlord. Your bankruptcy can also affect your membership of certain professional bodies – if you’re an accountant, a solicitor or an Insolvency Practitioner, for example.
Don’t worry – when you’re applying for any debt solution, a debt advisor will always ask you about your job or your plans for the future. If bankruptcy will affect your role, they’ll take this into account when they’re making their recommendation for you.
When you’re a discharged bankrupt, it means your bankruptcy is now complete. However, you may have to keep paying into an Income Payment Agreement (IPA) for a total of up to three years, even though your bankruptcy has ended.
If you take on any new assets after your discharge from bankruptcy – if you buy a new car, for example – your creditors won’t have any claim over these. But if a claim for mis-sold Payment Protection Insurance (PPI) comes through after your discharge, you may have to pay this into your bankruptcy if it was mis-sold before you were bankrupt. Get in touch with your Trustee if you’re in this situation and they’ll let you know if you have to pay any money in.
But if you’ve got any assets your Trustee claimed while you were still bankrupt, you won’t get these back, even if your Trustee hasn’t sold them yet. That’s because they’re still in the ‘bankruptcy estate’ and your Trustee can still sell them and put the money towards your debts. The only exception is if your Trustee doesn’t sell your home within a certain amount of time, you might be allowed to keep it.
After bankruptcy, your details will still appear on the Insolvency Register for another three months. That means in theory someone could find out about your bankruptcy by searching for your name on this.
Bankruptcy will also affect your credit history for at least six years. And even after your bankruptcy has dropped off your file, you won’t have any history of managing credit. This can make it harder to get credit, or to get some other services like a mobile phone contract or a tenancy agreement.
It’s really important that you speak to a debt advisor before you apply for any debt solution, and this is no different for bankruptcy. It’s not a solution to enter into lightly, so make sure you have a clear picture of how it might affect all aspects of your life. You can get in touch with our debt advisors using any of the options to the left, or there’s free and impartial information available from the Money Advice Service.
Remember, there’s always a solution to deal with any debt problem and the sooner you speak to an expert about it, the sooner you can get on the path to becoming debt free.
by Emily BancroftBack to blog home