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Repaying Bankruptcy Early - Exploring the Options

Repaying Bankruptcy Early - Exploring the Options
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Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin14 Dec 2023

How to repay your bankruptcy?

Paying back your bankruptcy early or applying for this to be annulled is always an attractive prospect. Here we'll explain how you can use property financing to achieve the cancellation of your bankruptcy.

For more assistance with finding borrowing to refinance a bankruptcy situation, give us a call on 0330 304 3040 or drop an email to [email protected]

How Can I Annul My Bankruptcy?

You can apply for cancellation by repaying the debt, and the expenses, in full to the court that dealt with the original bankruptcy declaration.

An annulment means reversing the order, repaying the debt, and restoring your credit report to the position it was in before the bankruptcy. In essence, you borrow the cash to pay back everything you owe, secured against your property as security.

This option can pay back large debts, particularly where you couldn't avoid the bankruptcy outcome due to a serious life event.

Can I Cancel a Bankruptcy?

Yes, in some circumstances. You can apply to cancel the bankruptcy if:

  • You have been able to pay back your debts or have guaranteed the obligations against an asset, such as a property.
  • There is evidence that the creditors should not have brought a bankruptcy order, for example, if you can prove the value stated was wrong or below £5,000.
  • You have agreed on an IVA to repay your creditors as an alternative.

This cancellation process is the same thing as an annulment. If you can repay your debt, you first need to apply for approval from the court and notify your creditors.

Usually, a bankruptcy means paying back a monthly amount for between three and five years. The amount is usually any disposable income and increases if your earnings go up. However, if you can pay off 100% of the debt, you can end the repayment plan.

Can I Repair My Credit Report If I Apply to Annul my Bankruptcy?

To some extent, yes, you can. Reversing a bankruptcy won't solve any problems that led up to the bankruptcy order in the first place, and they will stay on your report for up to six years.

If you cancel your bankruptcy through an IVA, then this will show on your report.

However, it's well worth considering an annulment if you are in a position to do so since having a bankruptcy on your file can cause substantial difficulties.

You may need to keep up to date with your credit report to ensure the bankruptcy has been removed since it is up to the creditors to provide an update to the referencing agencies.

It's also wise to ensure the annulment has been shown on your credit file at all three of the most significant bureaus - TransUnion, Experian and Equifax.

Can I Get a Mortgage After a Bankruptcy Annulment?

Once the annulment has been recorded, your credit file will revert to the position before the bankruptcy. Therefore, you can apply for a mortgage but need to be mindful of any previous credit issues that may still be recorded.

In many cases, a specialist bad credit lender is required.

Still, it is often far easier to secure a mortgage with any other kind of credit issues than with a bankruptcy.

What are the Benefits of Cancelling a Bankruptcy?

If you have the option of cancelling a bankruptcy, it's usually a good decision. However, it is vital to consult an independent broker to ensure you don't take out any risky borrowing.

Benefits include:

  • Being more likely to qualify for competitive mortgage terms - bankruptcy applicants are usually classed as very high risk for at least six years.
  • Needing a lower deposit to purchase a home.
  • Having the option of applying for a joint mortgage without your bankruptcy impacting your partner's eligibility.
  • Removing the bankruptcy from your credit file - particularly valuable if your bankruptcy was not the result of pre-existing credit problems.
  • Avoiding entering into a repossession position if a mortgage is part of the bankruptcy order.
  • Restructuring finance to arrive at a manageable monthly repayment value.

What are the Options for Annulling a Bankruptcy Order?

The cancellation process is possible if you are within two years of the registration date and can either pay back the debt or have the option of borrowing the required value.

To qualify for a loan of this type, you will need to have sufficient equity in your property, a stable income source to prove you can afford the mortgage repayments, and a lender who will be willing to consider your application.

You'll also need a solicitor who can assess whether the annulment application is viable, as well as financial advice from an independent broker who can negotiate your eligibility terms with the most appropriate lender.

Remortgaging or mortgaging to repay a bankruptcy order could involve:

  • Remortgaging your existing mortgage completely, topping up the mortgage value to include the value of your debts.
  • Taking out a second mortgage in addition to an existing home loan.
  • Refinancing both your debts and mortgage through a regulated bridging loan.
  • Applying for a second charge bridging loan in addition to your existing mortgage.

Some of these options are short-term; it remains vital to seek whole-of-market advice to ensure you have an exit strategy to refinance in the long term. Once your credit file is clear, you will have much broader options regarding terms and interest rates.

How Can I Prove Affordability for a Home Loan to Annul a Bankruptcy?

Finding a mortgage to refinance a bankruptcy can be tricky. You will need to demonstrate that you can afford the mortgage payments.

Bridging loans are sometimes a more viable solution since most are on an interest-only basis or with interest rolled up into the finance.

The key is to show how you will exit the bridge, for example, by selling the property or by refinancing. For the latter, you will need an agreement in principle to demonstrate that you will be able to remortgage.

What are the Eligibility Criteria for a Bankruptcy Annulment Loan?

Most applicants will borrow against the equity in their property. Lenders offering annulment loans will need to consider:

  • Your credit file position after the annulment is complete.
  • How creditworthy you are with any pre-existing credit issues.
  • Why the bankruptcy occurred, and whether this was due to a life event.
  • What sort of property you have - this depends on whether it is a residence, commercial property, or buy to let investment.
  • The saleability of the property and valuation should the lender end up in a repossession scenario.

Professional Advice with Finding a Bankruptcy Annulment Loan

Facing bankruptcy can be stressful, and if you have the potential to secure a loan to repay the debt and recover your credit file, seeking independent advice is crucial.

Revolution Finance Brokers are bad credit experts and help thousands of people affordably restructure their finances.

For more advice on annulment loans or remortgaging to avoid bankruptcy, give us a call on 0330 304 3040 or email [email protected] for a confidential consultation.

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.