Bankruptcy badly affects your credit record for six years.
This article looks at what should happen to your credit record when you are discharged from bankruptcy after a year. Even if you have no intention of getting into debt again, a good credit score makes it easier to rent a house, get a mobile contract and it’s essential if you want a mortgage.
Contents
Check in detail what your credit records show
There are three different Credit Reference Agencies (CRAs) in Britain.
To do a thorough job of cleaning up your credit records, you need to look at all three of them as many lenders only report to one CRA. If you only check one, you may miss a problem which is only showing on a different CRA.
Get the Statutory reports from each of the three CRAs, there is no charge for this, see How to check all your credit records for free.
Even if you can get other reports for free, the Statutory Reports are best:
- they are simple
- they can easily be downloaded
- they are “real-time” so you get a current picture of your credit record.
How bankruptcy should be recorded
The key document from SCOR/ICO
The Steering Committee on Reciprocity (SCOR) – the group of lenders that decide how credit records should be updated – and the Information Commissioners Office (ICO) published Principles for the Reporting of Arrears, Arrangements and Defaults at Credit Reference Agencies in July 2016.
This includes details of what should happen when you go bankrupt and when you are discharged from bankruptcy. Here I call it the SCOR/ICO paper for short.
After you go bankrupt – check your debts have the right default date
Bankruptcy will be shown in the Public Record section of your credit record. It can sometimes take a few weeks for the entry to appear, but when it does, the date on it will be the date your bankruptcy started.
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 which is your bankruptcy start date. There will be no change for any debts which have already been marked as defaulted or for CCJs.
Secured debts such as mortgages
The situation with a mortgage (or a secured loan) is slightly more complicated.
If you carry on paying your mortgage after going bankrupt and there are no arrears a default should not be recorded.
When you had stopped paying the mortgage before bankruptcy or when you go bankrupt, a default should be recorded with the bankruptcy start date. This is stated in the SCOR/ICO paper which says:
“The default date must be consistent with that of the CCJ/bankruptcy or IVA; therefore a default should be filed as being no later than the date of the insolvency order. [page 7]”
If you were still paying the mortgage after bankruptcy but later stopped, the default date should still be the date you went bankrupt.
When you are discharged
The Insolvency Service will notify the CRAs who will add your discharge to the Public Record section. This doesn’t remove the bankruptcy marker.
The debts included in your bankruptcy should be marked by the creditors as partially settled with zero owing on the date of discharge. This is what the SCOR/ICO paper says should happen:
Your record should be closed and marked as partially settled if…. your account is included in an insolvency such as a bankruptcy or IVA which is discharged/completed and less than the full amount is paid. [page 8].
Six years after you went bankrupt
Everything should vanish and your credit rating will improve significantly!
The bankruptcy marker will drop off your credit record. And all the debts in your bankruptcy will drop off if they had a default date on or before your bankruptcy, as they should have had. CCJs also drop off after 6 years.
The only reason why a debt in your bankruptcy doesn’t drop off when the bankruptcy goes is if the default date isn’t right.
Correcting problems
1) Creditor doesn’t use the right default date
Ask the creditor to correct the record. Don’t bother to complain to Experian, Equifax etc about this – they only report what the creditors tell them.
Don’t do this on the phone – you may be talking to staff who don’t understand what you are saying. Instead complain to the creditor in writing – email is best as you keep a record of it. Put COMPLAINT ABOUT CREDIT RECORD as the subject.
For all debts except for mortgage shortfalls, use this template:
I went bankrupt on dd/mm/yyyy. I attach a copy of my Bankruptcy Order.
I am writing to ask you to correct my credit file for the above debt. At the moment [there is no default date shown / the default date is shown as dd/mm/yyyy]. This is incorrect and a breach of the SCOR/ICO 2016 guidelines and the Data Protection Act 1998. There should be a default date not later than the start date of my bankruptcy.
Please correct this entry within 28 days or supply me with a written reason why you will not do so.
Recheck your credit file after say six weeks. If it has not been corrected, put in a complaint to the Information Commissioner’s Office here. Attach copies of your email or letter to the creditor and any reply from the creditor.
2) 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 SCOR/ICO 2016 document quoted above.
However it seems that sometimes the ICO is failing to apply its own guidelines with this type of situation.
Here is a case where the Financial Ombudsman has upheld the complaint, applying the rules about dates as they are described in this article: Platform mortgage case. So I suggest that if the lender doesn’t correct your record when asked, you should complain to the Financial Ombudsman, not to the ICO.
3) Debt not marked as satisfied after discharge
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.
But if your debts are still showing as having a balance owing, this needs to be sorted. Ideally you need to get a Certificate of Discharge from the court where you went bankrupt (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:
I [went bankrupt at xxxxx County Court / had my bankruptcy approved] on dd/mm/yyyy. I was discharged on dd/mm/yyyy. I attach a copy of my [Certificate of Discharge/letter of discharge].
I am writing to ask you to correct my credit file for the above debt. The SCOR/ICO guidelines state that my credit file should show the debt was partially settled on the date of my discharge.
Please correct this entry within 28 days or supply me with a written reason why you will not do so.
Again, complain to the ICO/FCA as above if the entry is not corrected.
NB There is one exception here. 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. So any CCJs will continue to show as unsatisfied.
Is it worth doing this?
It is definitely worth correcting the dates of default unless they are just a few weeks late. If these are months late, this delays the time until your credit file is clean as these defaults will still remain after your bankruptcy marker has gone.
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 want to get new, positive credit marks after you are discharged. First 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 you have two options.
Get a “bad credit card”
You can apply for a bad credit card such as Vanquis, Aqua or Luma. 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 a different one to maximise your chance of being accepted.
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 a different card.
This sort of credit card is dangerous. They are aimed at people with very bad credit and they charge a very high rate of interest. This doesn’t matter if you use the card every month and repay it in full every month, so you never pay interest.
Your credit rating will not improve faster if you leave a balance on this card and pay interest. The best thing for your credit rating is to repay it in full each month.
If you find your balance is creeping up because you are not clearing it in full, stop spending on the card until it is cleared and have a re-think about budgeting.
Start saving with LOQBOX
This is a new product where you make regular savings for 12 months but this looks like a loan – so making the savings shows as loan repayment, improving your credit record. At the end of 12 months you have a nest egg saved up and a credit score that is starting to improve. See How does LOQBOX work for details.
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. while the bankruptcy marker and the defaulted debts in the bankruptcy are still on your credit record, your credit score is never going to get to Fair.
The template letters to your creditors here are very likely to work. If they don’t, putting in a complaint to the ICO is the best way to repair your credit.
Never pay any firms offering a ‘repair your credit’ service because either they don’t work at all or will be no better than doing what is described here.
This article is kept updated.
How to use a credit builder card
Amigo – not a good way to rebuild a credit score
How does discharge from bankruptcy work?
AB says
Sara
This post is in regard to when exactly a default occurs.
My family, all deedholders in a buy-to let portfolio, have all had to go bankrupt after defaulting on a loan secured on same. We went bankrupt at different times over a 3 year period. Mortgages were maintained until the last bankruptcy.
One lender took the view that until a property was sold, the debt could not be crystallised and so could not be included in a bankruptcy. This had the impact of effectively prolonging the 6 years post-bankruptcy notification to credit reports – a significant inconvenience to the first bankruptee.
We complained to the Financial Ombudsman whose initial view agreed with the lenders position. We are currently challenging this view and would welcome any assistance on our best way forward.
Regards
AB
Sara (Debt Camel) says
One lender took the view that until a property was sold, the debt could not be crystallised and so could not be included in a bankruptcy.
This is wrong. There is no need for a property to be sold for the debt a bankrupt owes to be included in their bankruptcy.
See 43.7 and 43.8 in https://www.gov.uk/guidance/technical-guidance-for-official-receivers/43-creditors-and-liabilities
If the bankrupt concerned asks his Official Receiver about this the OR should be prepared to confirm that the mortgage date was a debt provable in his bankruptcy.
Also point the adjudicator to https://secureservercdn.net/160.153.137.210/mb9.87b.myftpupload.com/wp-content/uploads/2020/08/Principles-for-the-Reporting-of-Arrears-Arrangements-and-Defaults-at-Credit-Reference-Agencies-vesrion-2a-final.pdf which dexribes Industry Best Practice for reporting defaults. It says on page 7
“In normal circumstances lenders will be notified when the debt that is owed to them is to be included in an insolvency e.g. bankruptcy, IVA or similar and should be marked as included in that by filing a default as soon as is practical.
The default date must be consistent with that of the CCJ/bankruptcy or IVA; therefore a default should be filed as being no later than the date of the insolvency order. In circumstances where the lender is not immediately aware, the default can be filed at that point in time. If evidence of the insolvency date is provided, the default date recorded at the CRA will be aligned.”
The fact that this is a joint mortgage is not relevant. The individual filing for bankruptcy has had that debt included in his bankruptcy application.
AB says
Sara
Thank you for your response.
My understanding of the position taken by the lender is based on your reference highlighted above.
https://secureservercdn.net/160.153.137.210/mb9.87b.myftpupload.com/wp-content/uploads/2020/08/Principles-for-the-Reporting-of-Arrears-Arrangements-and-Defaults-at-Credit-Reference-Agencies-vesrion-2a-final.pdf
On page 8 (2nd para)
‘Where there is joint liability and only one party is the subject of an insolvency order, then the account should not automatically be marked in default if it is being maintained by the other party.’
The lenders position
Noted that the bankruptcy of deedholders occurred over a 3 year period.
The lenders point is that because the mortgage was maintained after the first bankruptcy, there was no default – the mortgages were being paid. Nothing to report. This is said to be fair to the first bankrupt deedholder because the possibility is open that until the last man goes bankrupt, it is not certain that there will be a default. The lender would state that their position is consistent with the clause highlighted above.
Your comments are appreciated
AB
Sara (Debt Camel) says
I would still argue that the default for the first person to go bankrupt should be backdated to the date of their bankruptcy – they made no payments after that, the mortgage was included in their bankruptcy from the start and they had no liability to make any payments after that and to make the default later is unfair to them.
AB says
Sara
I totally agree with you. However, it is not my (or your) opinion that counts.
The lenders point is that the tangible fact of the default occurred approx. 3 years after the first bankruptcy – and that their reporting of same is consistent with ICO document. Given that there was no tangible default on the first bankruptcy, what should lender have reported at that time.
The other guidance document you referenced confirm your (and my) opinion – but what happens when two guidance documents appear not to be consistent with each other. Which has precedence. Do lenders have to comply with both guidance documents, or just either.
This is what I believe to be at the centre of the problem.
AB
Sara (Debt Camel) says
FOS looks at all facts in a case and should take a decision that is fair.
That is why I suggested you point out that the mortgage was 100% included in the bankruptcy from day 1, any discussion about whether the debt is crystallised or not is irrelevant. The Official Receiver should be able to confirm that to you in writing which you can show FOS.
You then argue that it is unfair for a default to be added later than the bankruptcy date. If the lender chooses not to add a default at all because the mortgage is being repaid, that is fine. But it is unreasonable for someone to have a default date of later than the bankruptcy added as at tht point they have no liability for the debt so it should be backdated to the bankruptcy date.
AB says
Sara
Thank you for your comments above. You have reinforced my view of the issue.
It has been suggested that the FOS is not the best platform for me to complain to – that this enquiry should have been better placed with Financial Conduct Authority.
Your comments appreciated
AB
Sara (Debt Camel) says
The FCA will not look into an individual query – FOS is the right place.
Maria says
Thank you for the information. I have a couple of questions that I am not clear on.
1. I’d like to apply for a credit card after I’ve been discharged in March this year. I plan on using it for groceries which I will pay straight away.
Will this help start restoring my credit at all? And if so, will it be significant?
2. After the bankruptcy clears from my credit file, will my credit improve? And if so, by how much? Will it be fair, or good, at all? Would having had the credit card as above, help at all?
Sara (Debt Camel) says
After your discharge wait a couple of months and then check all the debts in your bankruptcy are marked as settled as the article above suggests. Get all of these sorted before applying for a bad credit card.
When yo7 get a card i5 will have a very low limit. Use it onc3 during the month for something that is less than a third of that limit. Do NOT pay it off immediately, but wait until the card statement/email arrives. Then pay it in full. The simplest was is to set up a direc5 debit t9 repay the card in full every month.
If you pay it off too soon, no balance shows on your statement and that doesn’t help your credit record. Pay in full after the statement and you never pay interest.
Do this and it will help your credit score a bit after awhile but when the bankruptcy goes yiur credit score should jump to very good.
Maria says
Thank you 😊