29 Sep 2020

How long does bankruptcy take from start to finish?

Bankruptcy is an insolvency process which allows consumers to write off their unsecured debts. This can be a good solution for anyone who is not able to keep up with repayment demands, but bankruptcy can also have a serious impact on all aspects of life.

If you are considering bankruptcy, it is important to make sure you understand the length of time it takes as well as the process in order to make the correct decision for your situation.

How long does bankruptcy take?

Bankruptcy can be voluntary, where you ask to be declared bankrupt, or involuntary, where your creditors make you bankrupt. The process of being made bankrupt is different in each case, with the time frame potentially differing based on which category it falls into. However, the process and effect once you are bankrupt is the same regardless of how your bankruptcy started.

The process of being declared bankrupt varies from case to case and it can take weeks or months to have your bankruptcy approved. Once you have been declared bankrupt, it takes just 12 months to complete the process and to be discharged, meaning you are no longer bankrupt and your debt is written off. If you do not comply with the conditions of your bankruptcy order this may be extended, but if you follow the simple rules which apply, bankruptcy will not last longer than one year in the vast majority of cases.

The first step in a voluntary bankruptcy is to apply to the court and ask them to make you bankrupt. You will need to pay a £680 fee to do this. The process of applying is not complicated but there is a lot of information which you need to provide, so you should make sure you set aside some time to do this when you won’t be interrupted or distracted. It is important that you get all of the details correct on your application. This is called the bankruptcy petition. Notice of your application will be published in the Gazette for any of your creditors to respond to the notice and register their interest in your estate.

Once you have applied for bankruptcy you will hear from the adjudicator via email or letter within 28 days of submitting your application. You will have a date for a court hearing, where a district judge will decide whether to approve or dismiss the petition for bankruptcy. If this is an involuntary bankruptcy, you will have the opportunity to send a defence to the court and they will consider this before deciding whether to approve the bankruptcy application.

If you choose to oppose a bankruptcy petition, you must write to the court at least seven days before the date of the hearing. In practical terms, unless you can prove that the debt is disputed on reasonable grounds, the court will approve the bankruptcy application. Reasonable grounds would include if you don’t owe the money, the claimant is out of time to make you bankrupt or if you have already made a reasonable offer of repayment.

Within two weeks of approving the bankruptcy order, the court will appoint a trustee (or ‘official receiver’) who will be in charge of distributing your assets and any income among your creditors. The trustee will deal with all legalities and creditors on your behalf. If you pay income tax through PAYE (this only applies to some people), your tax code will be changed to NT until the end of the tax year in April. This just means you will be paying the same amount of tax to someone different.

If you have sufficient surplus income, you will need to make an Income Payments Agreement (IPA). This is a regular payment that is taken from your income and paid to the bankruptcy estate. That income is then shared between your creditors. An IPA may last after you are discharged from bankruptcy. Often, you will need to make monthly payments for three years. You must report any significant changes in your income or expenditure to your official receiver as they will adjust your repayments accordingly.

The good news is that it is not common to have an IPA, with only one in six people who went bankrupt in 2017 going through this type of process. If you do not have a substantial income, you are unlikely to need to make any payment once you are discharged.

How long does bankruptcy last?

You are usually discharged from your bankruptcy after 12 months. However, your bankruptcy will stay on your credit reference file for six years from the date of your bankruptcy order (that is when the court declares you bankrupt). Having been bankrupt can impact on other areas of your life for several years after you have been discharged, making the process feel much longer.

So, as long as you follow the rules of your bankruptcy, you will be discharged after 12 months. That means that your bankruptcy restrictions end and your unsecured debts will have been wiped out. It is not possible for most unsecured debt to survive bankruptcy, even if that creditor did not know you were being made bankrupt. Only a very limited number of debts can still stand after you have been bankrupt, including student loans, loans secured against land or debt which you owe under family proceedings.

It is important to get proof of your completed bankruptcy. Even though you are automatically discharged, you may not receive any official confirmation. You should email the Insolvency Service to ask for a free confirmation letter. If you do this, make sure that you keep this somewhere safe.

What happens after you are discharged from bankruptcy?

Once you are discharged, the main thing is to get your finances in check and wait for your credit rating to recover ready for the future. You may struggle to obtain further credit while your bankruptcy appears on your credit report. This will show for 6 years from the date of the bankruptcy order.

During bankruptcy, some of your belongings may have been taken and sold to pay off debts you have. Discharge does not mean that you will get back any belongings, even if they have not yet been sold. This could take some time for the official receiver to deal with.

If you had equity in your home, this may have been taken to be held in trust as part of your bankruptcy. The trustee has three years to act against your home, for example selling or applying for a charging order. If they do not take any action within three years, your home will become yours again and no further action can be taken. Any charging orders against the property will still stand, until they are removed.

It is important to note that you and your family can still live in your home while it is held in trust. The trustee will need an additional court order to sell your house against your will or force you to leave. This is unlikely to be granted where there is not much equity in your property or if you have children under 18 living at home. After three months of completion, your bankruptcy listing will be removed from the insolvency register. It will, however, still appear on your credit report.

Charging orders which were entered during bankruptcy are automatically removed from the Land Charges register after five years if they are not renewed. The Land Charges Registry is a public record that registers the ownership of land and property in England and Wales. You can download a copy of your title deeds, which will list all the charges against your property from HM Land Registry on GOV.UK (a small fee applies). Bankruptcy entries will be removed from your credit report automatically after six years. Until this happens, you will find it very difficult to take out new credit.

Whilst bankruptcy can be a quick and cost efficient solution for many consumers who are struggling to repay their debts, this is a strict process which may have long lasting consequences. If you are exploring your options for a debt free future we are happy to speak to you about your options and your legal rights.