What happens after discharge from bankruptcy?

A reader asked:

I went bankrupt in October 2015 and discharged 1 year after. My question is about savings. Can I save now without any risk of my savings being taken from me? Also my grandmother wants to put a large sum of money in my name 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.

When do you get discharged and why may this be suspended?

Since 2013, almost everyone is discharged 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 this, “not co-operating” means refusing to answer questions or concealing things – the OR isn’t going to expect you to have a perfect memory or receipts for everything bought over the last five years.

If 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.

What happens when you are discharged

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.

When you are discharged you are released from your debts (except for any which couldn’t form part of your bankruptcy such as student loans.) Your bankruptcy ends, you are no longer bankrupt!

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, see below. The events you no longer have to tell the OR about include:

• receiving redundancy money (see Redundancy and bankruptcy);
• getting an inheritance (see Inheriting money when bankrupt); and
• a pension lump sum or money you withdrew from a pension (see Bankruptcy and Pensions).

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 in practice few people can afford to save much at that point.

The various 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.

Any existing assets may still be sold/claimed by the OR

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 may have to be sold within the 12 months, this still applies after discharge.

This also applies where you have had the right to an asset before your discharge. This can include an ongoing court or insurance case where you may later receive a payout, a distribution from a will where the person died before you were discharged and any PPI or similar reclaims.

That last point surprises and disappoints many people. There is no point in you making a complaint about PPI mis-selling after your discharge because the money will go to the OR, not to you. This is because legally you had the right to make a PPI claim at the point you went bankrupt, so that right is an asset which became the property of the OR when you went bankrupt.

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.

BRO/BRUs – restrictions still apply

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 released from your debts, but you will continue to have a series of restrictions on what you can do for the period of your BRO/BRU.

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 very few people get BRO/BRUs.

Do you have an IPA/IPO?

If you have an Income Payments Agreement (IPA) when you are discharged

This also applies to the unusual Income Payments Orders (IPOs).

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 will be able to claim your redundancy money or an inheritance – they won’t, 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.

If you don’t have an IPA/IPO

More than 80% of people who go bankrupt do not have an IPA set. If you don’t have an IPA when you are discharged – and more then 80% of people don’t – 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 rare exception – if the OR has applied to court for an IPO before your discharge, then it can be set up afterwards.)

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.gsi.gov.uk – this is free.

Some lenders, especially mortgage lenders, will want to see a Certificate of Discharge. How you get this depends on how you went bankrupt:

• if you applied for bankruptcy online after April 2016, you can email the Insolvency Service and ask for a Certificate of Discharge – this is free.
• if you went bankrupt before April 2016 or if you were made bankruptcy by a creditor you should 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.

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 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 any questions about your specific case, the best thing to do is to contact your OR’s office.