Credit after Bankruptcy

Bankruptcy is the most extreme way to deal with debts you cannot pay. When you're made Bankrupt, your assets are shared out among those you owe money to - you're likely to lose your house and car, and everything except essentials. All your bank accounts are closed. The Bankruptcy is advertised in the local press and on the internet.

In return, you're freed from your debts (although some types of debt, such as government Student Loans and Court fines, cannot be included in a Bankruptcy).

How Bankruptcy will affect your ability to obtain credit

You go Bankrupt via a Court order, either by applying yourself or when your creditors (the people you owe money to) approach the Court to ask for you to be made Bankrupt.

The Bankruptcy order shows on your credit report for a minimum of six years from the date of Bankruptcy.

During the period of Bankruptcy, a number of restrictions apply. For example, you are legally bound to tell a lender you are Bankrupt if you are applying for credit of more than £500. This means you are unlikely to be able to obtain credit while you are Bankrupt.

Even after your Bankruptcy has been discharged, organisations might refuse to give you credit or other financial services simply because you have been Bankrupt in the past.

And if you do manage to find someone who will lend to you, it is possible that they will charge you a higher interest rate as they will see you as a high-risk customer.

Some mortgage lenders will ask if you have ever been Bankrupt, so your Bankruptcy could affect your creditworthiness forever.

When your Bankruptcy ends

You will be automatically freed from your Bankruptcy (known as being ‘discharged’) after a maximum of 12 months in England and Wales.

However, the discharge can be extended indefinitely if you fail to cooperate in the Bankruptcy proceedings.

Scottish Bankruptcies are called sequestrations and are usually discharged after three years.

Who can find out about my Bankruptcy

The Bankruptcy is a matter of public record. It is also shown in your credit report – and as a condition of a new job or rental, you may have to agree to let an employer or landlord look at the ‘public’ information on your credit report, such as Court Judgments and Bankruptcy orders. So Bankruptcy may affect your chances of renting a home or getting the job you want.

Who should consider Bankruptcy?

If you are struggling to meet payments, get in touch with your creditors and tell them about your situation. Many lenders will be sympathetic and you may be able to make an informal agreement direct with them to make reduced payments for a while.

Bankruptcy will still be the best option for some people. But the long-term affects on your ability to borrow mean it should only ever be considered as a last resort and after receiving professional advice, such as from a Citizens Advice Bureau, a solicitor, a qualified accountant, an authorised insolvency practitioner, a reputable financial adviser or a debt advice centre.

Alternatively, contact National Debtline or the Consumer Credit Counselling Service for free, confidential and impartial advice. You do not need to pay a company to arrange a debt management plan for you, nor should you pay for help from any so-called credit repair companies.

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