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.
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. See How to check all your credit records for free.
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.
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:
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 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 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:
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 either 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.