Credit after bankruptcy

What it means for you - Consumer Advice

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How Bankruptcy Affects Your Credit - Help and Advice

Bankruptcy is usually seen as a last resort for dealing with debts you cannot pay. When you're made bankrupt, your assets are usually shared out among those you owe money to and, as a result, you may lose your house and car - everything except essentials. All your bank accounts can be closed and the bankruptcy is advertised on the internet.

In return, you're usually freed from your debts after one year (although some types of debt cannot be included in a bankruptcy, such as government student loans and court fines).

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 directly with them to make reduced payments for a while.

Bankruptcy will still be the best option for some people. However, the long-term effects 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 reputable debt advice centre. Alternatively, contact National Debtline, StepChange Debt Charity or Payplan 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.

How will bankruptcy 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 order. 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. If you do manage to find someone who will lend to you, it is possible 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 long after the information has been removed from your credit report.

When will your bankruptcy end?

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 (usually up to 15 years) if you fail to cooperate in the bankruptcy proceedings or are deemed to have acted in a dishonest or blameworthy way.

Scottish bankruptcies are called sequestrations and are usually discharged after one year.

Who can find out about your 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 tenancy, 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.


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