In the past, people have been nervous to declare bankruptcy not only due to the potential associated stigma, but also the long term implications. However, in today’s climate, where other debt solutions such as Individual Voluntary Agreements (IVAs) are not suitable, Bankruptcy has become far more widely accepted.
Short time frame
Unlike IVAs (as an example) which usually last for 5 years, those that are declared bankrupt are often discharged after only 12 months. After this time, it is usual that any restrictions that are imposed during the period are lifted, and the individual may be 'freed' from the debts owed. It is possible that, providing the Official Receiver and the creditors agree, discharge from bankruptcy could be earlier, though unlikely to be within the first 6 months. Should early discharge occur, the individual will receive a 'notice of early discharge' from the courts.
There are some circumstances that may result in a bankruptcy order being cancelled (also known as an annulment). This could occur if a mistake had occurred at the time the bankruptcy was declared, meaning that it should never have been imposed. It may also be annulled if all the debts owed, along with any fees associated with the bankruptcy, are paid in full. It may also be the case that the creditors accept an alternative to bankruptcy, such as a Debt Relief order (DRO) or an IVA. If annulment occurs, the individual’s record will in effect be 'reset', as if the bankruptcy order had never been imposed.
Extended bankruptcy restrictions
Where it is possible that a bankruptcy order could be ended early, it is also possible for it to be extended. Part of the role of the Official Receiver and the courts is to establish the reasons behind the bankruptcy in the first place. If it was due to severe neglect on the part of the debtor, then the bankruptcy restrictions could be extended to 3 years. Furthermore, if the individual breaks any of the restrictions imposed during the bankruptcy, then it is possible that a Bankruptcy Restrictions Order (BRO) may be imposed. This has the effect of extending the terms of the bankruptcy from between 2 and 15 years.
Longer term implications of bankruptcy
Even when an individual has been discharged from bankruptcy, there are one or two longer term implications to be considered:
• Credit record. Bankruptcy will remain on an individual’s credit record usually for a period of 6 years (except where a BRO has been imposed). This could have an impact on gaining further credit or a mortgage.
• Income Payments Agreement (IPA) / Income Payments Order (IPO). Where an individual finds they have a higher disposable income as a result of the bankruptcy stopping payments to creditors, it is possible that an IPA (voluntary agreement) or an IPO (court ordered agreement) will be put in place. This means that an amount of the disposable income will be paid monthly to creditors for the duration of the Agreement or order, which will usually be for 3 years.
There may be other circumstances that could affect the length and restrictions of bankruptcy; therefore it is always important for anyone considering bankruptcy to seek advice from a licensed money advisor, Insolvency Practitioner or from one of the free advice services available, such as the Citizens Advice Bureau (CAB), National Debtline or the Consumer Credit Counselling Service (CCCS).