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Can I Pay Off My Bankruptcy Early?

How to annul a bankruptcy

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 22, 2022

Customers often ask us if their bankruptcy can be annulled or cancelled if they can pay it off early and, if you have the potential to borrow, along with enough equity in your property, the answer may well be yes.

Customers with a bankruptcy on their file usually struggle to get credit and are often left out in the cold by mortgage lenders. But your bankruptcy might be reversible – we’ve put together this guide for those hoping to repair their credit rating.

Can bankruptcy be annulled?

Yes, in some situations it is possible for you to apply to cancel your bankruptcy.

In order to annul, or cancel, your bankruptcy you would have to have paid your bankruptcy debt and any associated expenses in full.

If you are able to achieve this, you then have to apply to the court which originally declared you bankrupt.

What is a bankruptcy annulment?

Bankruptcy annulment is a process where you can reverse a bankruptcy order, repay your debts and restore your credit file to the point at which you went bankrupt by borrowing the money (secured against your property as a main or second charge mortgage) to repay all your creditors.

Many people who go bankrupt do so to clear significant levels of debt that they are simply unable to repay.

We’ve come across hundreds of people who have suffered a significant life event, such as illness, bereavement or redundancy, which forced them into bankruptcy.

When they have managed to get back on their feet and are ready to get back on the property ladder, they find that, had they enquired earlier, they may have been able to annul their bankruptcy far sooner than they realised.

Get in touch on 0808 189 2301 and the advisors we work with will talk you through the main points you need to know about the annulment of a bankruptcy order in the UK.

Can I change my mind about bankruptcy?

In some cases, yes, you can apply to cancel your bankruptcy, though you cannot do so if you’ve simply changed your mind about it.

You can apply to cancel your bankruptcy if one or more of the following applies:

  • You’ve fully paid off your bankruptcy debts and expenses or have arranged to secure or guarantee debts against an asset (such as a property you own)
  • If you believe that the bankruptcy order from your creditors should not have been issued, for example because the debt was £5,000 or less, or your defence differed to the one your creditors made
  • Your creditors have instead approved an individual voluntary arrangement (IVA)

Stopping your bankruptcy shortly after filing

To cancel your bankruptcy order (officially called an annulment), you’ll need to apply to the court where you were the bankruptcy order was issued. If you successfully manage to cancel your bankruptcy, it will be as if it had never been made, and your credit should eventually return to its previous state.

Paying off a bankruptcy early

If you’ve entered a bankruptcy plan and want to pay it off early, you will need to notify your creditors and apply for court approval.

With a bankruptcy, you’ll typically agree to pay your creditors monthly payments for 3 to 5 years. This amount is any disposable income you may have, and if your disposable income increases (e.g. due to a pay rise), the payments will also increase.

However, if you’ve spent 3 out of 5 years paying off your debts and you come into a sum of money that’s large enough to pay off 100% of the debt, you’ll typically be able to pay it off and end the repayment plan early.

What happens to my credit file after an annulment of a bankruptcy order?

A bankruptcy reversal doesn’t normally delete or undo any credit issues leading up to it. So if late payments and arrears are registered on your credit file, they’re likely to remain in place for up to 6 years. If your creditors have agreed to an individual voluntary arrangement, then your score will still be affected.

However, the removal of bankruptcy can have a major impact on your credit history and credit score, as well as improving life in general.

Often, those who have gone bankrupt have a hard time getting their creditors to update the credit reference agencies in a timely manner, so if you have annulled your bankruptcy and your report is still showing the debt as outstanding, or if the bankruptcy still appears on your report, you may need to chase up the agencies.

You should check all 3 major credit agencies: Equifax, Experian and Transunion (previously Callcredit) and perhaps also the government’s insolvency department.

I’ve stopped my bankruptcy. Can I get a mortgage?

If you’ve successfully stopped your bankruptcy, it will be as though it never happened, and your credit score should return to normal.

Once the bankruptcy has been removed from your credit score, you should be able to apply for a mortgage, though this will depend on your circumstances and your credit rating prior to the bankruptcy filing.

Speak to an advisor for more information.

Why would someone annul a bankruptcy?

Reversing a bankruptcy can have wide-reaching impact, and the extent of this can be more for some than others, depending on individual circumstances.

Impact on future borrowing

Typically those who have gone bankrupt are considered higher risk by lenders for at least the next 6 years. At times, it can be longer than this and some lenders will never approve an application from someone who has been bankrupt.

Being higher risk often means more deposit. A smaller number of lenders available willing to consider your application also limits your options which will also lead to higher rates.

This will even be the case if you’re applying for a joint mortgage with someone who has clean credit. Although there are lenders who consider offering joint mortgages with one bad credit applicant, your bad credit could potentially have as much impact as it would on a solo application.

If you can annul the bankruptcy or avoid it altogether, then there may be no adverse effects on your credit file and therefore, no future borrowing issues. If the bankruptcy wasn’t due to unpaid credit (sometimes you can be made bankrupt because of unpaid tax) and the credit report is otherwise clean, then this is especially true.

On the other hand, if you have large amounts of personal debt and lots of missed payments you may see less impact by avoiding bankruptcy since you may not be able to borrow for a similar period as going bankrupt would have caused anyway.

For more on borrowing after bankruptcy see our article about getting a mortgage after bankruptcy.

Impact on future plans

If you’re able to annul your bankruptcy and come out of it with a decent credit file, you may be able to refinance, move house or buy a new property sooner.

However, if you declare bankruptcy you’ll probably find you need to save more deposit and wait longer before applying for a mortgage.

Impact on living conditions

If you’re struggling to meet repayments on your mortgage, and this is to be part of the bankruptcy order, then you’re likely to also be facing repossession and need to sell your house.

Post repossession, landlords and agents are more wary of approving applications to rent property, and it can be difficult to find somewhere to live, especially in an area you desire, without a large deposit, upfront rental payment, or guarantor.

There are also fewer mortgage providers who that would consider new mortgages in future, which limits your options even further.

Restructuring your finances can include extending the term of debts, and this may help to reduce monthly payments and help avoid a repeat of circumstances that lead to bankruptcy in the first place.

Impact for self-employed directors

For self-employed mortgage borrowers who go bankrupt due to a failing business or unpaid tax, may find it especially hard to get approved for a mortgage, even with specialist lenders who regularly consider bankrupt applicants.

This is generally because of the perceived risk that the borrower will continue to run a poor business and be unable to sustain income levels to afford the mortgage required. For this reason, most lenders willing to consider bankruptcy mortgages would only do so if the self-employed borrower is no longer running a business and is in full-time, stable employment.

Annulling your bankruptcy allows you to continue running your business and get a mortgage in the future. Also, and perhaps more importantly, it’s not permitted for someone to be a director of a Ltd company when bankrupt, so avoiding or annulling the bankruptcy allows you to continue as company director when you would otherwise be forced to resign.

Personal benefits

Some borrowers would rather not leave debts unpaid, and feel a sense of value in overcoming the issues they have faced to pay back what they owe without the need to sell their house or write the debts off altogether.

However, annulment is not ideal for everyone and, for some, bankruptcy is the best course of action.

How do you annul a bankruptcy?

We regularly hear the question “what is the best way to pay off my bankruptcy?”. Unfortunately, it isn’t quite as simple as filling out a bankruptcy annulment application form at the bank.

In order to complete an annulment, you need to meet the following criteria:

  • Be within 2 years of bankruptcy registration date (it may be possible to do it later than this, but it’ll be less straightforward).
  • Have either the funds to repay the debts owed and cover all the fees, or find a way to borrow the money to do so.

If borrowing, you’ll need:

  1. Enough equity in your property.
  2. An acceptable source of income to satisfy affordability assessments.
  3. A credit file to support an application (not all applicants are approved).

If the above criteria are met, you’d need a specialist solicitor to determine the viability of the annulment and a specialist financial advisor to establish eligibility with the right lender.

Call 0808 189 2301 or make an enquiry and we’ll match you with an advisor with the right experience to help you get where you want to be.

You can arrange finance options to:

  • Refinance everything onto a short term regulated bridging loan.
  • Secure a short term second charge regulated bridging loan on top of your current main mortgage.

Most of the above options, given the circumstances, are deemed higher risk finance by lenders and attract higher rates and fees as a result.

However, they are also designed to be short term solutions so once the annulment has completed, the right advisor would refinance you back onto the best available mortgage product. With a clean credit file, this should mean better rates and perhaps even mainstream deals, if the rest of your credit file is clear.

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Affording a bankruptcy annulment loan

As with any borrowing, affordability is a big factor.

Even with millions of pounds of equity in a property, lenders will be unable to consider an application from someone who doesn’t have the income to support repayments.

Affordability can be more flexible with the bridging finance options as they can be taken on a roll-up basis, meaning that interest is added to the loan and drawn from the equity from the outset. For example, borrowing £100,000 may only release £90,000 to you, if the rate was 10% per annum.

In order to take a bridging loan, a clear exit strategy needs to be in place.

This might be:

  • The sale of property – the property would need to be officially listed for sale before the money was released.
  • Refinancing – the applicant would need to evidence approval in principal before applying, which isn’t simple to do if your current credit file shows a bankruptcy status.

Talk to an expert advisor to find out which route might best suit your own circumstances.

Call 0808 189 2301 and we’ll match you with one of the advisors we work with who has previous experience of helping customers in similar situations.

Impact of other credit history issues on bankruptcy annulment loans

If you’re borrowing from equity in your property to annul a bankruptcy, establishing eligibility can only be done through application.

The lender will assess your situation almost as though the bankruptcy were not in place, and look at your ability and willingness to repay the new loan plus other debts, following completion of the annulment.

If your credit history is seeded with multiple events and issues such as defaultsCCJSdebt management plan and other issues unrelated to or long before the bankruptcy, and they see clear signs that you’re unlikely to repay the money they lend, they’ll find your application hard to approve.

Specialist UK lenders that consider bankruptcy annulment loans like a story to make sense, and favour applicants who have suffered from an unforeseen life event and want to make things right now that they’re back on their feet. As opposed to a serial borrower with scores of unpaid debts and no real reason why, other than a poor habit of overspending and a repetitive inability to mismanage their finances.

Affect of property type on bankruptcy annulment loans

If the property is your main residence then the lenders that consider an annulment application may be different, or terms offered may be different, than if you have equity in an investment or commercial property upon which you want to secure finance.

Equally, the construction of the property can have an impact. Suitable property usually needs to be of solid habitable construction, from acceptable building materials.

Traditional bricks and mortar houses are likely to be preferable to non-standard constructions such as pre-fabricated homes, listed buildings or houses with thatched roofs which will likely limit the number of lenders that will consider your application.

Ask a quick question

We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects.

Ask us a question and we'll get the best expert to help.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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