What happens after discharge from bankruptcy?

A reader asked:

I went bankrupt in 2021 and was discharged a year later. I am not paying an IPA. My question is about savings. Can I save now without any risk of my savings being taken from me?

Also my grandmother wants to give me a large sum of money but I’m not sure if it would be safe so the last thing I want is for her to lose money, so I’ve been reluctant to do it.

This article looks in detail at what happens when you are discharged from bankruptcy: the practicalities, the implications for savings and gifts and the restrictions that end after discharge.

Discharge is almost always after 12 months

Almost everyone is discharged from bankruptcy automatically 12 months after the date they went bankrupt.

During these 12 months when you are bankrupt, you have to co-operate with the Official Receiver (OR) and give information when asked to do so.

If you don’t co-operate, the OR may ask the court to suspend your discharge  – so you won’t be discharged at the end of the 12 months.

This is very rare and you will know if this happens.It isn’t done in secret.

Don’t worry about the remote possibility that you won’t be discharged The OR doesn’t expect you to have a perfect memory or receipts for everything bought over the last five years. “Not co-operating” means refusing to answer questions or not telling the OR the truth.

In the unusual case where your discharge from bankruptcy is suspended, you will be told by the court whether you have to do anything in order to get your discharge. If you don’t understand what is happening or you can’t do what you have been asked, talk to your local Citizens Advice about what your options are.  Do not ignore this problem as it won’t go away.

Discharge day – nothing happens!

You may have had the day ringed in your diary for months, but nothing visibly happens when you are discharged!

You don’t get a certificate or even an email from the OR.

If you haven’t heard anything from the OR about your discharge being suspended you can safely assume that you have been discharged.

Getting confirmation that you have been discharged

You can ask for a confirmation letter that you have been discharged from the Insolvency Service by emailing them at discharge.queries@insolvency.gov.uk – this is free.

Some lenders, especially mortgage lenders, may ask for a Certificate of Discharge.

How you get this depends on how you went bankrupt:

• if you applied for bankruptcy online email the Insolvency Service at discharge.queries@insolvency.gov.uk and ask for a Certificate of Discharge. This is free.
• if you were made bankrupt by a creditor – complete form LOC013 and send it with a cheque payable to ‘HM Courts and Tribunals Service’ to the court that made you bankrupt. It costs £70 for three copies of your Certificate of Discharge and £10 for additional extra copies.

What happens when you are discharged

Release from your debts

When you are discharged you are released from the debts that were included in your bankruptcy. These includes any debts you forgot to put on your bankruptcy application form. It doesn’t apply to debts such as student loans which couldn’t form part of your bankruptcy.

Your bankruptcy ends, you are no longer bankrupt!

Things you no longer have to tell the OR about

After discharge, you don’t have to tell the OR about assets or money that you receive, unless you were already entitled to these before your discharge.

The events you no longer have to tell the OR about include:

• receiving redundancy money (see Redundancy and bankruptcy);
• getting an inheritance (unless the person died before you were discharged, see Inheriting money when bankrupt); and
• a pension lump sum or money you withdraw from a pension (see Bankruptcy and Pensions).

There is a small exception here if you are paying an IPA/IPO, see below.

So the reader can safely be given money by her grandmother – it won’t be at risk at all.

And she can save as much as wants. She could have saved a small emergency fund before discharge, but few people can afford to save much at that point.

Bankruptcy restrictions that end

The restrictions of bankruptcy also end when you are discharged, unless you have a BRO/BRU, see below, so you will be able to:

• borrow more than £500 without telling the lender you are bankrupt (but if a lender asks if you have ever been bankrupt or insolvent, you still have to reply Yes);
• be a company director;
• change the name of your business if you’re self-employed; and
• buy a council house using the ‘right to buy’ scheme.

BRO/BRUs – restrictions still apply

The government says “Any dishonest or blameworthy behaviour could lead to a BRO”. 

That may sound alarming because most people who go bankrupt think they have been blameworthy to some extent…

But in practice very few people get BRO/BRUs. See Will you get a Bankruptcy Restriction Order (BRO)? Does it matter? for details.

If the OR has imposed a Bankruptcy Restriction Order (BRO), or you have agreed to a Bankruptcy Restriction Undertaking (BRU) you will still be discharged after twelve months and released from your debts.

But a BRO/BRU means you will continue to have a series of restrictions on what you can do for the period of your BRO/BRU.

Your possessions and assets

Personal possessions – normally safe!

Most people do not lose any personal possessions when they go bankrupt, see Will I lose my lawnmower? and other questions for details.

Most assets apart from your home that have to be sold are dealt with within the twelve month bankruptcy period.

In the unusual situation that you have assets that the OR has told you within the 12 months that may have to be sold, this still applies after discharge.

If you have not heard anything from the OR by the time you are discharged, that is the end. You will not be asked anything afterwards and nothing can be taken.

Family home

There’s a 3-year time limit for the OR to start legal action to sell the family home. If your share of the equity (or your “beneficial interest”) is less than £1,000 three years after you went bankrupt, no action will be taken, the interest will return to you and the restriction at Land Registry will be removed.

“The right to claim something” –  an asset that still belongs to the OR

Sometimes you have a legal right to do something, for example make an insurance claim, ask for a refund, sue someone.

If you had this legal right before you went bankrupt, this right is an asset that transferred to the OR when you went bankrupt. It does not transfer back to you when you are discharged,

This may include any ongoing complaints and court cases, and also ones which have not yet been started.

That last point may be a disappointment. There is no point in you asking for a refund eg by making an affordability complaint for loans taken prior to your bankruptcy because if you win the complaint the money will go to the OR, not to you.

It doesn’t matter if these loans were included in your bankruptcy or had already been repaid, you will not get these refunds.

But  you can make an affordability complaint about credit given after your discharge – then the money will come to you, not the OR. Any refunds for the loans before your bankruptcy will go to the OR.

IPA/IPOs – must be set up before discharge

If you don’t have an IPA/IPO

More than 80% of people who go bankrupt do not have an Income Payments Agreement (IPA) or an Income Payments Order (IPOs)  set.

If you don’t have an IPA when you are discharged one can’t be set up later and you don’t have to tell the OR about any changes to your income or expenses.

(There is a very rare exception. When the OR has applied to court for an IPO before your discharge, then it can be set up afterwards. If this affects you, you will know about it.)

IPAs/IPOs carry on after discharge

Here you have to make monthly payments to the Official Receiver for three years from the point it was set up. During these three years, you have to tell the OR about changes to your income and expenses and the IPA may be adjusted.

Being discharged doesn’t change this.

You should also tell the OR about any windfalls that you receive after your discharge while your IPA is continuing.

This does not mean that the OR can claim your redundancy money or an inheritance where the death happens after you were discharged – this won’t happen, see the links above.

But some windfalls are actually a form of income, for example a refund from the tax man, and you may need to pay a lump sum to the OR for these.

Your credit record after discharge

The details of your bankruptcy are kept on the Individual Insolvency Register for three months after discharge. If you check the register after this, your name should no longer appear, unless you have a BRO/BRU.

Your credit rating won’t improve immediately after you are discharged.

It will take some weeks or even a month or two for creditors to mark your debts as settled/partially settled with a zero balance owing and the bankruptcy marker itself will remain on your file for another five years.

After a few months, you can start the credit repair process, including getting creditors to correct any records which are wrong. See How to repair your credit record after bankruptcy for details.

“What about… ?”

The Insolvency Service helpline can answer general questions, but if you have questions about your specific case, the best thing to do is to contact your OR’s office.