If you’re struggling to pay off your debts, you may be considering bankruptcy. A formal legal process, bankruptcy may be a solution that could help individuals who are unable to pay their debts to gain a fresh start. When someone is declared bankrupt, their assets may be sold to pay off creditors, and they are given protection from further legal action by creditors for the duration of the bankruptcy.

Although a well-known debt solution, many people have questions about bankruptcy, such as how long does it last and what happens during it? In this article, we answer those questions and offer tips on life after bankruptcy.

How Long Does Bankruptcy Last in England, Wales, and Northern Ireland?

So, how long does bankruptcy last? Well, in the UK, it is generally 12 months, however the process varies depending on where you live. In England, Wales, and Northern Ireland, during those 12 months, an official receiver (OR) manages your financial affairs, ensuring assets are handled appropriately and creditors receive any funds available. Once this period is over, you are generally discharged from bankruptcy, meaning you are no longer responsible for the debts included in the process.

Sequestration, the Scottish version of bankruptcy, also lasts for 12 months and is a similar process to Bankruptcy. 

What Happens During Bankruptcy?

Once you are declared bankrupt, several key steps occur:

The official receiver (OR) is appointed

• Your appointed OR is responsible for overseeing the bankruptcy process, including managing your assets and debts. It is their job to investigate your finances and as part of this, they may interview you and ask for information about your financial situation. 

Your bank account is frozen

• Any existing bank accounts will likely be frozen and you may need to open a basic bank account to receive your income and make any daily transactions.

Your assets may be sold

• Your OR may sell your assets to pay off creditors. Assets tend to include property, vehicles worth more than £2000, expensive jewellery and life insurance policies with surrender value. However, essential items, such as clothes, household goods, tools necessary for work, and a vehicle of modest value (if needed for commuting to work), are usually protected.

You may be required to contribute towards your debt

• The OR will assess your income and determine whether you can contribute towards paying off your debts. If you have surplus income (after essential living expenses), you may be required to make payments towards the debts, usually for up to three years. This is known as an Income Payment Agreement (IPA) or an Income Payment Order (IPO).

You’ll need to follow certain Bankruptcy restrictions

• During bankruptcy, there are certain restrictions you’ll need to follow. For example, you aren’t allowed to get credit over £500 without informing the lender that you are bankrupt, act as a company director without permission from the court or have power of attorney for another person. These restrictions last for the duration of the bankruptcy, which is typically 12 months, but can be extended if necessary.

Post-Bankruptcy Life: What to Expect

Generally, after 12 months you’ll be discharged from bankruptcy, meaning you are no longer legally required to pay most of the debts that were included in the bankruptcy. If you were on an IPA or IPO, those payments could continue beyond the 12 month discharge period.

Life after bankruptcy is the perfect opportunity to reassess your finances and begin rebuilding. This includes creating a budget, saving, and planning for the future. You will also find that most legal restrictions imposed during bankruptcy are lifted, allowing you to obtain credit again (although creditors may still check your history), act as a company director, and pursue business opportunities without court approval.

Bankruptcy may have taken an emotional toll, and it may take time to recover from the stigma associated with it. It’s therefore essential to have support from friends, family, or even professional counseling can be helpful during this period of adjustment. 

How Long Does Bankruptcy Stay On Your Credit Report? 

Bankruptcy will remain on your credit file for six years from the date the bankruptcy order is made. This can significantly affect your credit score, making it difficult to obtain loans, credit cards, or mortgages. However, many people begin to rebuild their credit after discharge by using credit responsibly, such as securing a low-limit credit card or a small loan and paying it off promptly. In time, you should be able to rebuild your credit score. 

Factors That May Extend the Bankruptcy Period

While most bankruptcies last 12 months, there are certain factors that can extend the duration:

Non-compliance

• Failing to cooperate with the official receiver, such as not disclosing assets or missing required payments, can lead to a Bankruptcy Restriction Order (BRO), extending restrictions for up to 15 years.

Income Payment Agreements

• If required, these payments last up to three years, even after the standard bankruptcy term ends.

Repeat Bankruptcy filings

• If you have been bankrupt before, you may face additional scrutiny and longer restrictions.

Hidden or undisclosed assets

• If assets are discovered that were not initially declared, your bankruptcy may be prolonged to ensure all creditors receive fair treatment.

Tips for Rebuilding After Bankruptcy

While bankruptcy can feel like a financial setback, there are steps you can take to rebuild your financial health:

• Check your credit report is accurate
• Open a Basic Bank Account to manage daily expenses.
• Consider a credit builder card to improve your credit score.
• Budget carefully
• Make sure you’re on the electoral roll
• Save regularly
• Build an emergency fund
• Join a debt support group.

Understanding the process, knowing what to expect post-bankruptcy and taking steps to rebuild your finances can help you regain financial stability over time. If you are considering bankruptcy or need guidance on financial recovery, you can get free debt advice from MoneyHelper. Alternatively, get in touch with us and we can talk through the options available.