Bankruptcy will badly affect your credit record for six years. This article looks at what should happen, how to correct any problems, and how to improve your credit rating when you are discharged. Even if you have no intention of accumulating debt again, a good credit score makes it easier to rent a house, get a mobile contract or a full current account and it’s essential if you want a mortgage.
- for an IVA – the equivalent of the bankruptcy petition date is the date your IVA started. The equivalent of discharge from bankruptcy is the date of your IVA completion certificate,not the date of your last payment. (The same applies for an IVA that completed early. Even if you repaid your debts in full, the IVA and the original defaults will remain for six years from the start date.)
- for a DRO – the equivalent of the bankruptcy petition date is the date your DRO started. The equivalent of discharge from bankruptcy is the date the DRO ends, which is almost always 12 months from the start.
How insolvency should be recorded
After you go bankrupt:
- Bankruptcy will be shown in the Public Record section of your credit record (for an explanation of the different parts of your credit record, see this Experian page ). It can sometimes take a few weeks for the entry to appear, but when it does, the date on it will be the date of your bankruptcy petition.
- If it hasn’t already been marked as defaulted when you go bankrupt, an unsecured debt should be marked as defaulted with a default date of your bankruptcy petition. This can take quite a while to happen as the Insolvency Service has to inform the creditor who then informs the Credit Reference Agencies (CRAs).
- the situation with a secured debt such as a mortgage is slightly more complicated.
- If you carry on paying your mortgage, not falling into arrears, then a default should not be recorded.
- If you have stopped paying the mortgage before bankruptcy or when you go bankrupt and a default should be recorded with the bankruptcy date.
- If you initially carried on paying the mortgage after bankruptcy but later stopped, the default date should be the date you went bankrupt, see ICO guidance in 2007 which stated:
“[paragraph 14] [If the loan has been included in a bankruptcy] the default should be filed in accordance with the guidance in paragraphs 47 – 48
[paragraph 48] If the customer stops payment at a later stage, the default recorded should show the date of the IVA or bankruptcy and the fact that it was settled only by IVA or bankruptcy…”
- There will be no change for any debts which have already been marked as in default or for CCJs.
When you are discharged:
- The Insolvency Service will notify the CRAs who will add this to the Public Record section. This doesn’t remove the bankruptcy marker – that will stay on your record for six years.
- The debts included in your bankruptcy should be marked by the creditors “to show that you no longer owe money on that account (perhaps by marking the entry as ‘partially satisfied’ or ‘partially settled’ or in some other way)” (quote from the Information Commissioner’s Office).
After six years everything vanishes and your credit rating will improve:
- The bankruptcy marker will drop off your credit record.
- Defaulted debts will drop off six years from the default date, so some of these will probably have disappeared already, but the rest should go at the same time as the bankruptcy marker.
- CCJs drop off six years from the judgment date, so they will also be gone six years after date of your bankruptcy petition.
1) Creditor doesn’t use the correct default date
There is no point in complaining to Experian, Equifax etc about this – they just report what the creditors tell them. You have to ask the creditor to correct the record. Don’t try to do this on the phone because you are likely to spend a long, frustrating time talking to staff who don’t seem to understand what you are saying. Instead write a letter to the Data Controller for the creditor (get the address from the ICO here), send it Recorded Delivery and keep a copy. For an unsecured debt, the letter could follow this template :
Recheck you credit file after say six weeks. If it has not been corrected, put in a complaint to the Information Commissioner’s Office here or, if the problem debt is a mortgage after bankruptcy, I suggest you put in a complaint to the Financial Ombudsman here. (The reason for this is that although the ICO seems to be handling complaints about normal debts absolutely fine, it appears to have developed an odd blind spot and isn’t applying its own rules for mortgages where the repossession date was post-bankruptcy, so it’s best to take these to the Financial Ombudsman.) Attach copies of your letter to the creditor, proof of posting and any reply from the creditor.
2) Creditor doesn’t mark debt as satisfied when you are discharged
The creditor doesn’t have to mark the debt as fully settled/satisfied so there is no point in complaining if the debt has been marked as partially settled/satisfied.
If you want to get this corrected ideally you need to get a Certificate of Discharge from the court where you went bankrupt (at the time of writing this costs £70 and £10 for additional copies) however many lenders will accept a copy of the free letter from the official receiver that you may have received. Then send the following letter to the data controller for the creditor:
Again, complain to the ICO as above if the entry is not corrected.
3) Problems with mortgage debts
It can be harder to get mortgage lenders to correct a date. If the lender has recorded the default date as being the date your house was repossessed not the date of your bankruptcy, you should include in your letter the quote from the ICO guidance in 2007 that is given above.
However it seems that the ICO is failing to apply its own guidelines with this type of situation. Here are two cases where the Financial Ombudsman has upheld the complaints, applying the rules about dates as they are described in this article: HSBC mortgage case and Platform mortgage case. So I suggest that in this situation you apply straight to the Financial Ombudsman, not to the ICO.
4) CCJs are usually not amended when you are discharged
There is no ‘partially settled’ status for a CCJ and the court only has to mark a CCJ as satisfied if you have paid it in full, which you haven’t. The best you can do is to add a note to your credit file (Experian explains how to do this here) to say that this CCJ was included in your bankruptcy, that you were discharged on dd/mm/yyyy and so you are no longer liable for the debt.
Is it worth doing this?
It is definitely worth correcting the dates of default unless they are just a bit late. If these are months or even years late, then this will delay the time until your credit file is clean as these debts will remain for six years after the default date. If you want to remortgage once your IVA has finished, it is essential that you repair your credit score as much as possible.
Marking your debts as satisfied after discharge is less important. Even if you get this amended, applications for credit, a normal bank account or a mortgage may well be refused whilst bankruptcy is still on your credit file. If you are close to the six-year drop-off, then you could decide to wait and let that clean everything up. However, getting a debt marked as satisfied will improve your credit rating slightly, which may be enough for you to be approved for a ‘bad credit’ card, see below. It also prevents the debt being ‘sold on’ to another Debt Collector, which is annoying as you have to correspond with yet another person and send them details of your bankruptcy.
Getting positive markers on your credit file
In addition to cleaning out the bad stuff from your credit history, you should aim to start acquiring new, positive credit marks after you are discharged. Make sure you are on the electoral roll, that your address etc are correct on your record, that your bankruptcy discharge is shown and start the clean-up process above. This may take several months to complete if you have to go to the ICO.
Then apply for either a Vanquis or a Luma credit card. Vanquis is owned by Provident, Luma is owned by Capital One – if you have had debts to either of these firms included in your bankruptcy, I suggest you apply to the other one to maximise your chance of being accepted. If you have had debts to both firms included in your bankruptcy, still apply to one of them – they make their money from taking on high risk customers..
If you are refused, double-check your credit file really is clean with all three credit reference agencies and wait six months or so, then apply to the other card.
These two cards are aimed at people with very bad credit and they charge a very high rate of interest. This doesn’t matter because you should aim to use the card every month and repay it in full every month, so you will never get charged interest! If you find your balance is creeping up because you are not clearing it in full, then you need to stop spending on the card until it is cleared and have a re-think about budgeting. Your credit rating will not improve faster if you leave a balance on this card. You should think of these cards as being dangerous – if you are not careful you will get sucked back into expensive debt.
After you have had one of these cards for a few months, think about getting a cheap monthly mobile phone contract, probably a SIM only one.
This all takes time
If you were expecting discharge from bankruptcy to make an immediate improvement to your credit score, it usually doesn’t… There isn’t a way to speed this up – don’t pay any firms offering a ‘repair your credit’ service because either they don’t work at all, or they will be no better than what you can do yourself. The template letters here are very likely to work and if they don’t, putting in a complaint to the ICO is the best way to repair your credit.
*** Updated 07/02/2015 and 22/04/15 with further information about secured loans