The concept of insolvency is an incredibly unpleasant one, whilst it’s also a little more commonplace than you may think.
A total of 115,299 people became insolvent last year, with this number representing one in 401 adults in the UK. Of this number, 14.4% entered bankruptcy, with the amount of people pursuing this course of action having increased slightly since the fourth quarter of 2017.
In some instances, people in these circumstances may be classed as an undischarged bankrupt. But what does this mean, and how does it impact on your financial circumstances?
What’s Meant by the Term ‘Undischarged Bankrupt’?
In layman’s terms, an undischarged bankrupt is a person who has yet to be granted an ‘order of discharge’ by a court.
This order is typically awarded a year after your application, at which point the court officially discharges you from bankruptcy and any debts that are associated with the proceedings.
During this time, the court applies a number of restrictions in terms of employment and applying for credit. More specifically, an undischarged bankrupt is disqualified from holding certain public and private offices, including a member of the legislature or the director of a limited company.
At the same time, you may not be able to obtain credit over or above a certain limit, whilst you probably won’t be able to seek out finance at all without informing the creditor of your undischarged status.
What Causes a Delayed Discharge?
As we’ve already set, anyone who files for bankruptcy will be undischarged for a brief period of time, which usually lasts for no more than 12 months or beyond the first anniversary of the original declaration.
However, there are instances in which the court can insist on a delayed discharge, forcing you to comply with the restrictions for an indefinite period of time.
For example, you’re legally bound to cooperate with the official receiver and trustee during your bankruptcy, and the failure to provide information when requested could prevent you from being discharged by the court.
Legally, this is referred to as a suspension of discharge, and at this time the court will advise you of the steps that you need to take to overcome this hurdle.
Can I Still Borrow Money as an Undischarged Bankrupt?
Even once you’ve been discharged from bankruptcy, there are some debts that cannot legally be written off.
Take TV license arrears, for example, or outstanding payments pertaining to child maintenance.
As an undischarged bankrupt, however, your debts remain active and this can make the idea of sourcing additional credit or loans incredibly challenging.
Despite this, it remains possible for you to apply for credit as an undisclosed bankrupt, although you’ll need to declare your full financial circumstances to lenders (particularly when seeking a loan in excess of £500).
Not only this, but you’ll also have to choose from a restricted pool of lenders as an undischarged bankrupt. At the same time, potential creditors can apply inflated interest rates as a way of offsetting their perceived risk, with most likely to charge the legal maximum for a short-term loan in the UK (currently fixed at 0.8% per day).
Given the inflated cost of borrowing as an undischarged bankrupt and the associated risks, you’d be best served by waiting until the court has discharged you before you apply for additional credit.
There are circumstances in which this may be unavoidable, of course, but it’s important to review your circumstances and ensure that taking out further credit represents the best course of action going forward.