Life after debt

What happens when I'm discharged from bankruptcy?

Posted 12 June 2016

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When you’re a discharged bankrupt, what does this mean for you?

When your bankruptcy comes to an end, you’ll be a discharged bankrupt. This means your debts are settled and you’re no longer bankrupt. You’ll be free of some of the bankruptcy restrictions you’ve had to cope with and you can start rebuilding your financial life. 

But what will happen when you’re discharged from bankruptcy? Will everything just go back to the way it was before you had problem debt? We’ll take you through what happens and what you need to do about it.

When you’re discharged

As we’ve explained, you’re a discharged bankrupt when your bankruptcy has completed. This usually happens after a year, providing you’ve kept to the original terms of your bankruptcy and nothing has gone wrong. This is an automatic discharge.

If you were to come to us for advice it might turn out that bankruptcy is the best option for you. If we recommended this as your best option, we would help you through the initial stages and then the official receiver would take over the whole process. So if you want physical confirmation of your discharge you can ask the official receiver to send you a confirmation letter which is free of charge. Your discharge from bankruptcy will also be recorded on the Insolvency Register for three months, so you can screenshot this or print it off as proof. 

It’s really important that you’re always upfront with the official receiver and your trustee. If you break the terms of your bankruptcy it might be extended, known as a delayed discharge. If you have any questions about what you’re allowed and not allowed to do while you’re going through bankruptcy, make sure you direct these to your trustee or the company you used to organise your bankruptcy.

What changes?

If any of your belongings were seized under the bankruptcy agreement and have not yet been sold you won’t get them back. This is because they’re still in the bankruptcy estate – the official receiver just hasn’t dealt with them yet. However, if your home hasn’t sold for three years after your bankruptcy has ended, you might get it back.

You can also become a company director if you want – something you couldn’t do while your bankruptcy was ongoing. But if you can’t be a company director for some other reason – someone reported you for ‘unfit conduct’, for example – this still stands.

What’s still affected?

The end of your bankruptcy doesn’t mean everything will automatically go back to normal – it’s the start of your journey back to financial security. Bankruptcy stays on your credit history for six years. This means that if anyone runs a credit search on you, they’d see that you haven’t kept to your original credit agreements. This happens when you apply for credit or some other agreements, like a mobile phone contract.

Your bankruptcy could mean you’ll find it harder to get credit in the future. If you are accepted, it’s likely to be at a higher rate. If you want more advice on getting credit after bankruptcy, check out our blog on borrowing after a debt solution.

If you have an Income Payments Agreement (IPA), you’ll still make payments into this after your bankruptcy has ended. Some of these payments will go to your lenders to pay off what you owe. These IPAs can last for up to three years but if your income changes, you can apply to have the agreement changed. It’s important to note that if you have something to put towards your debts each month and you’re not on a benefit only income, it’s likely that an IPA will be put in place. 

While you’re bankrupt, the Official Receiver or Trustee can apply for a ‘charging order’ to claim the interest in your house on behalf of your lenders. They can only do this if you personally have at least £1,000 of equity in the property. 

You property should be dealt with within three years, but if it isn’t a charging order can be added. For more information on bankruptcy and charging orders, you can have a look here

Life after bankruptcy

After your bankruptcy has ended, it’s likely you’ll feel a sense of relief – it’s a new start for you and your finances. You’ll be free of the worry of problem debt, and once you finish your IPA after three years, that money will now be yours to spend as you wish. 

This doesn’t mean it’s a good idea to start borrowing straightaway, however. It might be best to stay away from borrowing any more money until you’ve definitely got to grips with your current financial situation.

You should put together a new household budget so you can see how much money you have coming in and what it’s going out on. Start by writing down all of your incomes, including money you earn from a job and any benefits you get. Next, make a list of all of your bills, from grocery shopping to utilities, rent, council tax and broadband payments. Don’t forget to include any secured debt repayments as these won’t have been cleared by your bankruptcy.

If there’s any money left over once you’ve worked your budget out, this is known as your ‘disposable income’. It’s a good idea to start putting some of this aside every month if you can afford it. That way, if you have an unexpected expense to cover – such as your washing machine breaking – you’ll be able to cover it.

You are able to apply to be made bankrupt yourself online but starting a debt solution is a big decision and it’s always best to get expert advice before you go ahead with anything. 

If you’re not sure whether bankruptcy is right for you, you can get free and impartial advice on this and all debt solutions from the Money Advice Service. You can also get in touch with one of our debt advisors, who can tell you whether bankruptcy is the best option for you.

by Emily Bancroft

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.