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Does bankruptcy last 6 years

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Does bankruptcy last 6 years

Does bankruptcy last 6 years

Many people think bankruptcy will last for 6 years or even longer. This is wrong. It actually only lasts for 1 year (12 months).

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Your bankruptcy should only last 1 year

You may be surprised to learn that if you go bankrupt, it will last for 1 year. After 12 months it comes to an end and you are discharged. After a further 3 months your name is removed from the insolvency register.

Once you are discharged, the bankruptcy restrictions no longer apply to you. If you get a windfall it will be yours to keep (although there are a very few exceptions to this). You can also borrow more than £500 without having to mention about your bankruptcy. You can be a company director if you wish.

It is possible that the one year period could be extended. However, this is rare. It only happens if the official receiver decides to issue a BRU (Bankruptcy Restrictions Undertaking) against you. The time you are under the restrictions of bankruptcy would then increase. The most common extension is 3.5 years.

Most people who go bankrupt do not get a BRU. It might only happen if you owe a significant of debt to HMRC because of unpaid tax. Alternatively if you have tried to hide any of your your assets before going bankrupt.

If you are made bankrupt and refuse to communicate with the Official Receiver, your discharge could be suspended indefinitely. You will only be discharged when you contact them and assist with their investigation of your affairs.

What if you have to make payments towards your debts?

If you have any spare income at the end of the month (after your reasonable living expenses are accounted for), you will be required to pay this towards your debt. It is known as an IPA (Income Payment Agreement).

Not everyone gets an IPA. If you have zero or negative surplus income, you won’t get one. But if you do have spare cash, an IPA is likely.  It will last for 3 years but runs separately from your bankruptcy. You will still be discharged after 1 year. But the payments continue for 3 years from when they start.

If your income changes during your IPA, you need to tell the Official Receiver (OR). Your payments could still go up or down even if you are already discharged.

Where you do not have an IPA, your bankruptcy will be over after 1 year. That will be the end of it. The OR is not allowed to ask you to start making payments towards your old debts after that even if your income increases in the future.

Want more advice about whether you will have to pay towards your debt after you go bankrupt? Give us a call (0800 044 3194) or complete the form below for a call back.

When does your credit score get better?

Your credit score is affected by going bankrupt for much longer than the bankruptcy itself. A record is put on your credit file and stays there for 6 years. This has a negative affect on your score.

In other words, if you go bankrupt on 1st Oct 2021, you will be discharged on 1st Oct 2022 (a year later). But the record will remain and continue to affect your credit score until 1st Oct 2027.

Having said that, it is actually possible to start repairing your credit score early. As soon as you are discharged, you can apply for a credit repair credit card. Used sensibly, this will build up a record of responsible credit usage on your file and start to improve your score.

If you do this, you should not have to wait the full 6 years before you can start borrowing again. Within just 2 years you may well find you are accepted for a standard bank account or loan. It may be possible to get car finance from a sub prime lender even sooner. Perhaps immediately after you are discharged.

At the time of writing it will not be possible to get high street mortgage until the record of your bankruptcy has come off your credit file.

 

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ABOUT THE AUTHOR
James Falla
I have been advising people on how to solve their debt problems for over 20 years. During this time I have helped many people go bankrupt. I am an FCA Approved Person and the Managing Director of Wilmott Turner Financial Services (owner and operator of Bankruptcy Expert
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