Bankruptcy is an opportunity to wipe debts clean and have a fresh financial start. But as a serious legal procedure, it can often be a confusing process for individuals in financial distress to undertake.
There are many misconceptions surrounding the bankruptcy process, including what it means to be an undischarged bankrupt. Bankruptcy can have long-lasting implications for you, your finances and your family, so understanding the process in more detail can help you to decide if declaring bankruptcy really is the best option.
In this article, the experts at Irwin Insolvency explain what an undischarged bankruptcy is, how long it lasts and what the consequences of being an undischarged bankrupt are. Here’s everything you need to know about undischarged bankruptcy.
What’s the Definition of an undischarged bankruptcy?
An undischarged bankruptcy is essentially an ongoing bankruptcy. An individual who has become insolvent and is no longer able to pay their debts may apply for bankruptcy or be forced into bankruptcy by their creditors.
Bankruptcy is a way for you to clear large debts, restructure what you owe and stop creditors harassing you for payments. It’s a legal process overseen by the UK’s Insolvency Service, and a process that anyone who is insolvent can apply for.
If your application for bankruptcy is approved, a bankruptcy order is made against you and you become what’s termed an undischarged bankrupt. This simply means that you are still subject to the bankruptcy process and you are under the restrictions of an undischarged bankruptcy.
As an undischarged bankrupt, your assets and finances will be placed under the control of an official receiver appointed by the Insolvency Service. You’ll be unable to apply for large sums of credit and your assets may be sold off to pay outstanding debts. At the end of your bankruptcy period, you’ll be formally discharged from bankruptcy. This means you will no longer legally be termed an undischarged bankrupt, you’ll be released from bankruptcy restrictions, and given a fresh financial start (although with several important caveats attached).
How Long Will I Remain an undischarged bankrupt?
You are legally termed to be an undischarged bankrupt as soon as the Insolvency Service approves your application for bankruptcy. As an undischarged bankrupt, you are then legally required to adhere to the terms of your bankruptcy, as defined by law and the official receiver appointed to oversee your case.
As part of the terms of your bankruptcy, you’ll be notified as to how long your bankruptcy will last. In the vast majority of cases, the bankruptcy period lasts for 12 months. This means that for 12 months, you remain an undischarged bankrupt.
It’s important to recognise that 12 months is generally the minimum bankruptcy period, but it’s rare for bankruptcies to be extended beyond this. All cases are looked at on an individual basis and assessed independently by the Insolvency Service.
Once the 12 months have elapsed, you’re discharged from bankruptcy and are no longer deemed to be an undischarged bankrupt. Some restrictions may still apply even after discharge, but for most people discharge is the end of the bankruptcy process.
What Happens to an undischarged bankrupt?
Okay, so you’ve become insolvent, you’ve weighed up your options with the help of an independent financial adviser, and you’ve come to the conclusion that bankruptcy is the best option for you.
You lodge your application with the Insolvency Service, and are notified that you have been declared legally bankrupt.
For the next 12 months, you are an undischarged bankrupt. But what does that mean for you, your job, your business and perhaps even your family?
Here’s the general procedure you often experience as an undischarged bankrupt:
- The Insolvency Service decides that you meet the criteria to be declared bankrupt. You receive official notification that you are now an undischarged bankrupt.
- A bankruptcy order, usually lasting 12 months, is issued. You are placed on the bankruptcy register and your bankruptcy becomes public knowledge.
- An official receiver (usually an experienced insolvency practitioner) is appointed on behalf of the Insolvency Service to determine the terms of your bankruptcy.
- The official receiver takes control of your financial accounts and assets. You are no longer in control of your finances, and will no longer be able to apply for credit over the sum of £500 without declaring that you are bankrupt.
- The official receiver assesses your debts and financial situation and may begin selling your personal assets in order to pay creditors. You may lose your car, your home and your business to pay off your debts.
- If you have an income, then as an undischarged bankrupt you may be subject to an income payment order (IPO). This takes a percentage of your income each month to pay your debts and may last longer than the bankruptcy period.
- For the next 12 months, you remain an undischarged bankrupt and it’s your legal responsibility to abide by the terms of your bankruptcy order.
- After 12 months you are discharged from your bankruptcy order. You are no longer an undischarged bankrupt, although certain restrictions and obligations may still apply.
In short, as an undischarged bankrupt you’re subject to a variety of restrictions that are determined as part of your bankruptcy order. As an undischarged bankrupt it will be impossible for you to source credit, for example. You’ll no longer have control of your finances and if you hold a position of trust within the community, such as a lawyer or charity trustee, you may also lose your job or position.
Being an undischarged bankrupt is a tough process to go through, and it’s not a process that anyone should enter into without due thought and consideration. Bankruptcy is often considered to be a last resort and, in many cases, there are other insolvency measures that can be taken before declaring bankruptcy.
What Happens When I’ve Been Discharged from Bankruptcy?
It’s going to be a long 12 months of financial and personal restrictions, but it’s important that you abide by the terms of your bankruptcy order or you could face an extension of your bankruptcy or, in extreme cases, even be taken to court.
When you are discharged from your bankruptcy order, many of the restrictions are dropped. In many cases, you now have the opportunity for a fresh financial start, although there are several key implications to still consider.
Before declaring bankruptcy, it’s important to consider what the positive and negative effects are likely to be after you’ve been discharged. Let’s take a look at the longer-lasting implications of bankruptcy in more detail. Here are the positives you can expect to happen after you’ve been discharged:
- Once discharged, major debts and liabilities may be written off completely.
- You have the opportunity for a fresh financial start.
- Outstanding debts may be consolidated and repaid with more favourable interest rates and repayment terms.
- Creditors are no longer legally allowed to chase you for outstanding debts accrued before being discharged.
- You may keep your family home and other assets if they are held in a partner’s name.
- If you have a job, you may have been allowed to keep your car in order to drive to work.
- You are allowed to keep enough of your income to live off, even if subject to income payment orders.
- You may start a new business, become self-employed or seek new employment.
- After being discharged, you may seek new lines of credit and open new bank accounts.
- Your bankruptcy is eventually struck from your credit rating.
However, there are major negatives to consider before declaring bankruptcy. You may lose any high-value personal assets, such as your family home or vehicle. You may also remain subject to income payment orders, and bankruptcy will continue to affect your credit score for several years to come. Here are the major disadvantages you can expect to experience even after you’ve been discharged from your bankruptcy:
- Bankruptcy is public knowledge.
- Not all debts are wiped out; you will continue paying for personal debts such as child support, student loans and any fines owed to councils.
- You may have lost your home and car. Your home can still be repossessed up to three years after you’ve been discharged.
- Landlords may terminate rental agreements or leases, and you may struggle to find rental properties willing to take you on in the future.
- You may have lost your business and your employees may have lost their jobs.
- You may have lost your job if you are a lawyer, Member of Parliament, or trustee.
- All of your bank accounts will have been closed and consolidated by the official receiver.
- You may continue to pay income payment orders for three years after being discharged.
- Bankruptcy remains on your personal credit score for six years, and you will find it difficult to secure credit, mortgages and loans.
- Credit agreements will generally be unfavourable, and you’ll be subject to high interest rates and stringent repayment terms.
- Even after bankruptcy is removed from your credit score, you are legally obliged to answer correctly if directly asked by a potential creditor if you’ve ever declared bankruptcy.
Everyone’s financial situation is different, and it’s important to understand that the implications of declaring bankruptcy will be different for everyone.
If you have high levels of debt and few assets to lose, then bankruptcy is often the best chance for a new opportunity after discharge. However, if you have valuable assets that could be taken away, such as a family home, or if you stand to lose your business or job because of bankruptcy, there may be a better alternative to consider first, such as an individual voluntary arrangement (IVA) or debt relief order (DRO).
How Do I Know When I’ve Been Discharged from Bankruptcy?
On a more practical level, you might be wondering how the discharge process takes effect. How do you know when you’ve actually been discharged from your bankruptcy?
The process is an automatic one. You won’t be notified when you’ve been discharged, but as soon as the 12-month bankruptcy order ends, that’s it. For this reason, it’s important to note exactly when the bankruptcy order is issued and to be aware of when the 12-month period is over.
But while the discharge process is automatic, if you’re looking to secure a new mortgage or loan in the future, then banks and lenders often ask for proof that you’ve been discharged. Proof of discharge isn’t automatically sent to you, but you can request it through the Insolvency Service.
The Insolvency Service can send you a free confirmation letter on request. However, banks often ask for an official certificate of discharge, which must be obtained through the courts. The Insolvency Service can secure this and send it to you for a fee of £70.
Can My Bankruptcy Discharge Be Delayed?
It’s rare, but there are circumstances when your bankruptcy discharge might be delayed. If this happens, then your official receiver will notify you as to why it’s been delayed and for how much longer you will remain an undischarged bankrupt.
If you break the terms of your bankruptcy order, the official receiver may recommend that your bankruptcy order be extended, and you could have a further bankruptcy restriction order taken out against you. For this reason, it’s crucial to keep to your restrictions so you can be discharged after 12 months.
Contact Irwin Insolvency Today to Find Out More About Declaring Bankruptcy
Declaring bankruptcy is a legal procedure that should never be entered into lightly. While bankruptcy can wipe out large debts and give you the opportunity for a fresh financial start, there are also long-lasting repercussions that can affect your credit score, employability and even your family life for many years to come.
If you’re facing financial difficulties and are considering declaring bankruptcy as a way to clear your debts, it’s important to speak to a professional insolvency advisor first. With decades of experience dealing with personal bankruptcy matters, the expert team at Irwin Insolvency are here to help. Contact Irwin Insolvency today for your free consultation.