How to recover from bankruptcy

Bankruptcy can leave you feeling like there’s a lot to pick up and sort out once you have been discharged. You may be at risk of losing your home and your credit rating is likely to have dropped significantly but the good news is that you can recover from this. However, it will require a lot of time and patience.

How to recover from bankruptcy step-by-step

This guide may help when it comes to tackling life after being made bankrupt. We’ve attempted to condense things down into a step-by-step format so you have a clear direction of where to go next.

Step 1: Confirm you have been discharged

You may not receive official notice if you are automatically discharged from your bankruptcy, so keep an eye on the Insolvency Register for the date you are expected to be released and ensure – this is updated within three months of you being discharged. If it isn’t, contact the Insolvency Service to have this amended.

We have an in-depth guide on finding out your discharge date to help with this.

After three months your listing on the Insolvency Register should automatically come off. Again, keep an eye on this and check it is removed on time.

Step 2: Get a confirmation of discharge

Next, we recommend getting hold of your Certificate of Discharge. It is free to obtain a letter of confirmation of discharge from the Insolvency Service. You can use this as proof that your debts are satisfied, if you receive contact from any creditors in the future.

Step 3: Sort out your housing situation

It’s likely that the official receiver has not yet confirmed what they intend to do with your property. However, you may need to move out as your home could be sold to release equity and your share used to pay towards your debts. We have more information about this here. Bear in mind that the receiver has three years to action a sale on your home. If nothing is decided after this time then the share of the property goes back to you and you can keep your home.

Until a decision is made, speak to friends or family who may be able to accommodate you for a certain amount of time while you get back on your feet. You may need to consider opening up a storage unit to keep your furniture and other belongings safe until they can be moved into a new property. If your bankruptcy has left you homeless, speak to your local council as soon as possible about finding new accommodation for you and your family.

If you need to speak to someone about your housing situation, contact the charity Shelter for advice. 

Step 4: Open a new bank account

It’s likely that your bank account was closed when you were made bankrupt and if you were unable to open a new one this should be easier now. This allows you freedom to set up direct debits again for everyday expenses and ensure bills go out on time. You may not be able to get an overdraft straight away, but you can still enjoy the ease that goes with internet banking again.

Step 5: Work on your credit rating

Your credit rating will have taken a significant hit when your bankruptcy was created. Therefore, you need to be patient and take the time to rebuild this. Start very small, with perhaps a 0% interest credit card that you can make small purchases on and repay at the end of the month on time and in full. This will prove that you can borrow money sensibly and your rating should creep up.

Bear in mind that your bankruptcy will remain listed for six years from the date you were made bankrupt. Creditors will be able to see this and can base their decisions about your credit applications on it. However, time will help and working with small amounts of credit and paying this off will improve your rating. Once the bankruptcy drops off, you should find it much easier to obtain credit, which means you can look ahead to the future and perhaps consider big purchases like buying a home.

It’s also a good idea to check that your listing on the electoral roll is correct and that the three main credit reference agencies have all the right details on you, to create an accurate credit rating. Check out this guide on improving your credit rating to help with this step.

Step 6: Take another look at your finances

Now that you are debt free, you have the opportunity to approach money differently and start again. It’s time to live by a strict budget and to remove unnecessary expenses from your everyday life.

Starting a budget is pretty simple – it’s all about understanding where your money needs to go as a priority, and removing any spending that you don’t need. The 50/30/20 rule works for a lot of people – you can read more about this and how to avoid debt in the future here.

Step 7: Deal with creditors still chasing after bankruptcy

This shouldn’t happen but you may receive a chasing from a creditor whose debt was included in the bankruptcy. It’s important you have your Confirmation of Discharge to hand as proof that your bankruptcy is complete and, therefore, the debt you owe them is considered satisfied. They should then stop chasing.

If they don’t, you can reach out to the Financial Ombudsman to make a complaint. We have more details here about how to challenge a debt. It’s important you do not pay a creditor anything if they are chasing for a debt that was included in your bankruptcy.

If you want to talk to a financial expert about recovering from bankruptcy, speak to a member of our team at PayPlan on 0800 316 1833who can offer free, impartial advice about your situation.