Upheld: incorrect credit file reporting following bankruptcy discharge complaint against Leeds Building Society

Decision detail

Summary

Mr C complained to the Financial Ombudsman Service about Leeds Building Society's reporting of mortgage arrears to credit reference agencies following his bankruptcy discharge in June 2025. Leeds had reported arrears from February 2025 and default from April 2025, which Mr C claimed prevented him from opening a bank account. The Ombudsman upheld the complaint, finding that under the Insolvency Act 1986, Mr C was released from his mortgage debt upon discharge and therefore was not liable to pay monthly instalments, making the arrears reporting incorrect. Leeds was ordered to amend the credit file to show the mortgage as defaulted on the bankruptcy order date and as 'partially satisfied' from the discharge date, remove arrears reporting, and pay £300 compensation.

The Ombudsman's reasoning

The Ombudsman distinguished between a lender's right to enforce security over a property and the right to require repayment of debt. Under section 281(1) of the Insolvency Act 1986, discharge from bankruptcy releases the borrower from all bankruptcy debts, meaning Mr C was not liable to pay monthly instalments after discharge. Therefore, Leeds was not entitled to report arrears or contact Mr C about missed payments after the bankruptcy discharge. The correct reporting should have marked the mortgage as defaulted on the bankruptcy order date and as 'partially satisfied' or 'partly settled' from the discharge date. While the Ombudsman was not persuaded that the mortgage reporting alone caused Mr C's difficulties opening a bank account (given bankruptcy's general impact on credit files), the incorrect reporting added to his upset and inconvenience.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website