How long does bankruptcy last? « Personal and Business Debt Solutions

The stigma surrounding bankruptcy has significantly reduced and more and more people are choosing this option to resolve their personal debt problems. However there is often confusion about how long a bankruptcy will last. We consider the timescales involved.

If you go bankrupt your bankruptcy will normally last twelve months.

After the twelve month period, you will be discharged. This means that you are then free from the restrictions of being a bankrupt person.

For example any financial windfalls you receive are yours to keep and you can again become the director of a limited company.

There are some occasions when the official receiver (OR) might discharge you early from your bankruptcy. This means that your bankruptcy will end before the full twelve months is up.

However the rules on early discharge have recently been tightened up and now it will be very unlikely that you will be discharged early unless there are very special circumstances where the OR believes there is benefit to you remaining bankrupt.

At the discretion of the official receiver, your bankruptcy could last longer than twelve months, but again this is unusual.

Generally your bankruptcy will only be extended past twelve months if either you have already been bankrupt in the past or lied to the court about your financial circumstances.

Payments to your creditors

Once you have declared yourself bankrupt, the official receiver will review your income and reasonable living expenses.

If the OR feels that you have any disposable income – spare money each month after being able to pay for your living expenses – you will normally be asked to make payments towards your debts.

Since December 2010, the rules on disposable income have been tightened up. Now, if you have disposable income of £20 or more, the OR is obliged to set up an income payment agreement (IPA) with you.

An IPA will last for three years. This means that although you will normally be discharged from your bankruptcy after 12 months, your IPA will still remain in place until three years from the date it was set up.

It is important to understand that while you have an income payment order in place, if your income improves you will be asked to pay more. This is the case even if you have already been discharged from your bankruptcy.

Effect on credit rating

When you are declared bankrupt, the bankruptcy will be recorded on your credit file. This record will remain on your credit file for 6 years from the date you were bankrupt

During this period, anyone who carries out a credit check on you will then be made aware that you have been bankrupt in the past 6 years.

Even once you have been discharged and you are no longer a bankrupt person, the record will remain on your credit file.

Clearly this will have a negative effect on your ability to borrow money. However, declaring yourself bankrupt does not mean that you will never be able to have credit in the future or get a mortgage.

You should not be able to get additional credit while you are still bankrupt. However, once you are discharged it is possible to borrow once again.

Ultimately whether you are able to get credit will depend on the criteria used by the lender you approach. Some HP and mortgage companies may well be able to offer you a loan shortly after you are discharged, however, you must expect to pay a relatively high interest rate.

Generally speaking the longer the time that passes after you are discharged from your bankruptcy, the more opportunity you will have to take credit at reasonable rates of interest.

Busting the myths

Over the past few years, bankruptcy has become a much more appealing option to deal with a personal debt problem.

The assumption that a bankruptcy will last for many years is wrong. In fact the vast majority of people who declare themselves bankrupt are discharged after just one year.

However, the effects of bankruptcy may last a little longer. A bankruptcy income payment agreement will last for three years and the record of bankruptcy will remain on your credit record for six years.

However, these time scales are certainly comparable to other debt solutions.

Payments in an individual voluntary arrangement (IVA) will last for five years and if you use a debt management plan (DMP), your credit rating will remain poor until your debts are paid or settled in full which could easily be six years or more.

If you are struggling with debt, visit www.beatmydebt.com

Our vibrant forum gives free access to industry experts and others who have suffered with debt problems.

Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems. Share this: