What happens once I've been discharged from bankruptcy?

Bankruptcy can be an extremely stressful time. Hasib Howlader of Hudson Weir explains what happens when you are discharged from bankruptcy 12 months after receiving a bankruptcy order.

Bankruptcy Discharge Guide

Officially you will get discharged from bankruptcy 12 months after getting the bankruptcy order, but the day you receive your bankruptcy order can feel like an opportunity to make a fresh start and begin approaching your finances differently.

However, while the debts you take into bankruptcy will no longer be hanging over you and you’ll also be free from the restrictions laid out in your bankruptcy order, this doesn’t mean all of your finances will go back to normal immediately.

Your trustee or official receiver should explain everything to you, but it is helpful to know what to expect once you’re discharged from bankruptcy.

Bankruptcy order and official discharge

Applying for bankruptcy can be a daunting prospect, but being issued with a bankruptcy order may be seen as the first day of a new beginning.

A bankruptcy order will mean that unless creditors have court permission to do so, they will not be able to take legal action against you to recover the outstanding debts owed to them at the date of the bankruptcy order itself (S285(3) Insolvency Act 1986).

As such, it is not unusual for debtors to feel a sense of relief once the bankruptcy order has been issued, and it can often feel like the first step to getting your life and finances back on the straight and narrow.

You won’t be discharged from the bankruptcy until twelve months later, when you will be released from most of the debts owed when you were declared bankrupt (S281 Insolvency Act 1986).

Whether you have made no payments to creditors, still have some assets yet to be sold or are on an Income Payments Agreement (IPA), you will still be discharged automatically after one year.

However, if the trustee has reason to believe you have entered into the bankruptcy fraudulently, or if you have not fully cooperated with them, then your bankruptcy may be suspended indefinitely and extended longer than twelve months.

What will still be affected after discharge?

Once you have been discharged there are two main things that will return to normal;

  • You will once again be able to act as a company director, unless there is another reason which disqualifies you from doing so.
  • Any assets you gain after you have been discharged will be your own and will not be used to contribute towards your debts held under the existing bankruptcy.

But while life should slowly begin to get back on track after you’ve been discharged, there are still some things that will be affected by the bankruptcy;

  • Certain debts

While the majority of your debts will be wiped out after you’ve been discharged, there are some exceptions. These include debts such as those gained by fraud, maintenance settlements, personal injury damages owed, student loans, court fines and any debts you incur after the bankruptcy order. 

  • Credit rating

Your bankruptcy will stay on your credit report for six years and will continue to affect your credit score for that period. In this instance, you are unlikely to obtain credit, even after you have been discharged.

Lenders, employers and landlords may also ask if you have ever been bankrupt, even after it has been removed from your credit report. It’s important to keep on top of your credit report and ask the credit agencies to update their records after you have been discharged from bankruptcy.

  • Public records

You will be automatically removed from the Individual Insolvency Register within three months of your discharge.

  • Assets

While any assets you obtain after you’ve been discharged are safe, any that were seized under the bankruptcy that have not yet been dealt with remain under the control of the trustee or official receiver. They can still be used to pay off your debts even after discharge and you will not be able to take them back.

  • Income Payments Agreement (IPA)

If you have been making payments via an IPA, you will still be required to make these payments for three years even after you have been discharged from bankruptcy.

  • Your estate 

If a charging order over the interest in your home has been put in place, this will continue for up to three years even after you have been discharged. If your home hasn't been sold or dealt with within three years after the bankruptcy order, it may be returned to you.

Getting a mortgage for any new property will also be extremely difficult in the six years after you entered into bankruptcy due to your low credit score.

Life after discharge from bankruptcy

Many choose to see a bankruptcy order as the chance to make a fresh start, not least when they are discharged twelve months later and certain restrictions of the bankruptcy are lifted.

It’s important not to fall into any old financial habits and to keep your finances on the straight and narrow. Budget and avoid taking out any further credit unless it’s absolutely essential.

About the authors

Hasib Howlader is a licensed insolvency practitioner, chartered accountant, chartered tax adviser and current Director of Hudson Weir.

See also

Company insolvency statistics - Q2 2019

Insolvency Service reviews current IP regulatory landscape

Debt collection can and should be done responsibly

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