How long does bankruptcy stay on your credit report?

Every four and a half minutes, someone in England or Wales goes bankrupt. That’s approximately 333 people a day, or 121,545 people a year. In short, it’s a lot of people, and if you’re considering declaring bankruptcy, you’re not alone. 

Bankruptcy is a legal process you can pursue if you can’t pay your outstanding debts. And while bankruptcy provides a way for you to make a fresh start, it has significant consequences for your credit report and financial health.

In the UK, bankruptcy stays on your credit report for six years. This can vary slightly depending on when the bankruptcy is discharged (more on this later). Bankruptcy will lead to a significant drop in your credit score. Plus, because it leaves a negative mark in your credit report, lenders will be hesitant to lend to you, which impacts your ability to access credit products until the mark goes away.

Beyond how long a bankruptcy stays on your credit report, there’s a lot you should understand about filing for bankruptcy. Here, we’ll explain what else you should know about bankruptcy’s impact on your credit score. Let’s get right to it!

What debts does bankruptcy cover?

Bankruptcy covers most unsecured debts like credit cards, personal loans, overdrafts, and payday loans. However, other debts aren’t covered. For example, you’ll need to pay the following even after bankruptcy:

• Child maintenance
• Student loans
• Mortgages and any loans that are secured to your home
• Fines

Other debts, like car finance, may be handled differently. In most cases, your vehicle can’t be excluded from the bankruptcy, so you’ll lose your car. However, your trustee (the person overseeing your bankruptcy) may decide not to claim the vehicle. In this case, it’s up to the finance company to determine whether to repossess the vehicle.

Am I eligible for bankruptcy?

Eligibility for bankruptcy in the UK is relatively simple, with the main requirement being an inability to pay your debts. There are three reasons you can declare bankruptcy or be declared bankrupt.

First, you can declare yourself bankrupt if you can’t afford your payments. Secondly, if you owe a creditor at least £5,000, they can apply to make you bankrupt. Finally, you can also be made bankrupt if you fail to adhere to the terms of your individual voluntary arrangement (IVA).

How long does it take for my bankruptcy to be discharged?

Being ‘discharged’ essentially means you’ll no longer be obligated to pay the debts you filed bankruptcy for. While a bankruptcy will be visible on your credit report for as long as six years, you’ll be discharged from your bankruptcy earlier.

There are three types of discharge:

1. Standard Discharge: Standard discharge happens when you’re discharged from bankruptcy after 12 months. It’s the most common type of discharge.
2. Early Discharge: In some cases, you could be discharged earlier if you’ve met all the conditions of your bankruptcy and your creditors are satisfied.
3. Extended Discharge: If there was any evidence of misconduct or non-compliance during the bankruptcy filing process, it could lead to your discharge being extended beyond the standard 12 months.

Tips for rebuilding your credit score after bankruptcy

Bankruptcy’s impact on your credit score can make it significantly harder to access credit, particularly in the first couple years after your bankruptcy. While building your credit score will be difficult as long as a bankruptcy is on your credit report, there are steps you can take to improve your eligibility for certain credit products.

1. Make timely payments: Your payment history is the single-most important factor influencing your credit score. It’s also one of the first things lenders will look at when you apply for credit. Making timely and complete payments for utilities, mobile contracts, rent, and more can demonstrate that you’ve truly turned over a new leaf following your bankruptcy.
2. Avoid taking on new debt: If you have additional debts that weren’t included in your bankruptcy, focus on paying them off and avoid taking on any additional debt. Granted, most lenders and banks will be hesitant to extend you any form of credit in the period following a bankruptcy.
3. Monitor your credit score and report: While credit-building progress will be slow following a bankruptcy, that doesn’t mean you should ignore your credit score and credit report. Checking your credit report regularly (2-4 times a year) can ensure that there’s nothing there in error, and help you find new areas for improvement.
4. Utilise credit-building tools: Credit builder loans, credit builder cards, and other credit builders like the Pave app can help you reestablish and build your payment history. This can help you build a solid foundation as time passes. Keep in mind that you may not qualify for these products in the immediate aftermath of a bankruptcy, and even if you do, their impact may be overshadowed by your bankruptcy.

Alternatives to bankruptcy

If you’re considering bankruptcy, understand that it’s not your only option. Depending on your situation, you may also qualify for a debt relief order or an individual voluntary agreement.

Debt Relief Orders (DRO)

A Debt Relief Order (DRO) is a debt management solution that eliminates certain debts after a year. DROs protect you from creditors and allow you to get your finances back under control. However, like bankruptcy, Debt Relief Orders have significant long-term consequences, including a lengthy impact on your credit report.

DROs also have strict eligibility requirements to ensure that they can successfully help those who need debt relief. To learn more about DROs, check out our article on what else you should know about them. 

Individual Voluntary Agreements (IVA)

An Individual Voluntary Arrangement (IVA) is a legally-binding agreement between you and your creditors. IVAs protect you from certain legal actions and help you pay your debts off over a period of about five years. Ultimately, an IVA can release you from some debts after you complete the agreement.

IVAs are typically only available if you’re struggling with a certain level of unsecured debt. There’s no legal minimum for the amount of debt you need to qualify, but many insolvency practitioners will adhere to their own minimums, often ranging from £6,000-£15,000.

While an IVA can protect you from legal action by creditors and may lead to a portion of your debt being written off upon completion, it's important to consider the impact on your credit rating, potential fees, and the strict requirements during the arrangement.

To learn more about IVAs, check out our article on how they work.

Talk to an expert

Debt relief solutions like bankruptcy, DROs, and IVAs are all serious decisions that have long-lasting impacts on your credit score, employability, and reputation. Take the time to review your options and consider consulting with a debt advisor to get a professional’s second opinion.

The Bottom Line

Filing for bankruptcy is an enormous financial decision that will impact your credit score for six years. It’s crucial that you take the time to determine whether bankruptcy is right for you.

If you ultimately determine that bankruptcy is right for your personal situation, make sure you take the time to develop new financial habits. Without doing so, you could find yourself back in debt after your bankruptcy. To avoid being back in the stressful financial situation you just got out of, focus on adopting financial habits like:

• Budgeting and tracking your spending
• Building an emergency fund
• Staying up to date on other payments

Habits like these can ensure that you enjoy financial stability after bankruptcy.

Finally, if you’ve filed for bankruptcy, start taking steps to rebuild your credit score. Pave’s credit builder accounts can help you grow your credit score by consistently building your payment history. Plus, we can help you protect your score from further damage by letting you know when you have upcoming bills that could impact your credit score, and you can easily track your credit scores from Equifax and TransUnion right in the app.

To get started, download Pave today!

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Note that if you’ve been declared bankrupt or put on an IVA, a DRO, or debt management plan in the last 12 months, using Pave to build your credit score may not help you access credit. This is because even if you build your credit score, many lenders may not extend credit to you on the basis of you having such markers on your credit file.