Discharge from bankruptcy in the UK (England, Wales and Northern Ireland) is automatic after one year, in most cases. ‘Discharge’ means that you are no longer a ‘bankrupt’ person one year after your bankruptcy commenced. A typical exception would be for example a person who was made bankrupt for a second time, where the discharge period could be longer than one year.
What are the effects of being discharged from bankruptcy? Well, for a start you can begin to seek to obtain credit again. You are not prohibited from doing this once you are discharged. Will you get such credit? Will you, for example, be able to take out a mortgage after you have been discharged fro bankruptcy? Here is where your ‘credit file’ comes in or to be more precise the ‘impairment of your credit file’.
Creditors use credit reference agencies such as Experian, Equifax and Callcredit to keep and maintain records of the repayment performance of borrowers. These records are call ‘credit files’ If you are bankrupt you will have your own credit file. The business of the credit reference agencies is to record data regarding repayment performance on the credit files of borrowers and sell it to any interested party, provided they have a consumer credit license. Thus banks, mortgage providers, HP providers, credit card providers and even trading creditors can access your financial records in regard to borrowings. If you have a good credit history, then these records can facilitate your further borrowing at preferential rates. Access to and publication of such personal financial data relating to insolvent individuals is not prohibited by the Data Protection Act.
If you default however in repaying any of your borrowings, creditors can also create records of your failure. They do this by registering a default on the relevant account and provide the relevant information to the credit reference agencies. Even before you became bankrupt, some of your creditors may already have registered such defaults where you have failed to comply with the terms and conditions of credit agreements, usually by failing to make contractual repayments.
Defaults remain on your credit file for six years from their date of registration. In bankruptcy, the defaults will usually be removed about five years after discharge from bankruptcy which as we see nowadays usually lasts one year. Credit may be refused by some lenders if the credit file still carries default records. However, six years from the dates of the defaults, the credit reference agencies should automatically update the credit files and remove all references to defaults. If this has not been done, the debtor can request the credit reference agencies to do so and in the absence of a satisfactory response from them, can invoke their complaints procedures to deal with the matter and so begin to repair a damaged credit rating.
In summary, it will be more difficult for you to obtain a mortgage if you have been bankrupt at any time in the last five years. Even after your credit file has been repaired i.e. when no reference to your bankruptcy remains on your credit records, you may still encounter difficulty because you do not have a ‘good’ credit history. If you do receive a mortgage offer following your discharge from bankruptcy (after one year) or even when your credit files are no longer impaired (after six years have elapsed), you may find that you can only avail of ‘sub-prime’ mortgage interest rates.