How Bankruptcy Affects Your Credit Rating

Posted by Tom Magor in Dealing with Debt on 7 March 2019 - Tom is a Senior Credit Analyst at checkmyfile.

In terms of negative information that could appear on your Credit Report, evidence of bankruptcy or other forms of insolvency is about as serious as it gets and it’s likely to adversely affect your ability to take out new forms of credit for a considerable amount of time.

It’s true that going bankrupt will severely limit your ability to get credit for a considerable amount of time, but it’s important to remember that this won’t last indefinitely.

Understanding exactly how bankruptcy works is an important step to becoming creditworthy again in the future.

How long will a bankruptcy appear on my Credit Report?

A bankruptcy will remain on your Credit Report for 6 years from the original insolvency date. After this time it will automatically be removed from your Credit Report provided the bankruptcy is reported as discharged. If it remains active, it can continue to be reported indefinitely.

Because bankruptcy needs to be reported as discharged before it can be removed, it’s important to obtain a copy of the discharge certificate from your Insolvency Practitioner as soon as it is available.

Once you reach that stage, you should pay your Credit Report another visit to ensure that each of the UK’s four Credit Reference Agencies – Crediva, Equifax, Experian and TransUnion - has updated the information it holds to reflect the change. Bear in mind that it can take up to two months for the change to be reflected, so don’t panic if it isn’t changed immediately.

Because a bankruptcy forms part of the ‘public’ element of your Credit Report, it will be visible to prospective employers, landlords and insurance providers , not just lenders and as such could have affect more than just future applications for credit.

Bankruptcy records remain on HM Land Registry and Registers of Scotland files for twelve years, regardless of whether you have been discharged or not.

You can see what information each of the UK’s four Credit Reference Agencies holds about you, including any record of insolvency, with checkmyfile. If you haven’t already, you can try us FREE for 30 days, then for just £14.99 a month afterwards.

What happens to existing credit agreements when you go bankrupt?

A common misconception is that when an individual enters bankruptcy, their credit agreements are superseded and are no longer reported on that person’s Credit Report. In reality, credit accounts continue to be reported irrespective of any bankruptcy.

Bankruptcy offers an individual legal protection against all creditors, but it doesn’t mean that the information relating to those accounts stops being reported.

The length of time that any credit accounts that are included in the bankruptcy remain on your Credit Report will vary and won’t mirror the timing of the bankruptcy (especially where a Notice of Default has already been issued) but will typically be reported for a period of six years.

Although it’s not mandatory, after you have been discharged from bankruptcy, you can send a copy of your discharge certificate to each lender with accounts included within the bankruptcy and ask that the status of the credit agreement be amended to settled or satisfied.

In truth, changes to individual credit accounts are highly unlikely to improve your Credit Rating while a bankruptcy is present and your ability to take out new forms of credit will still be greatly reduced, regardless of any other changes to your Credit Report during this time. It may however stand you in slightly better stead once your bankruptcy is no longer reported.

Applying for credit with a bankruptcy

The presence of a bankruptcy on your Credit Report means that you are highly unlikely to be accepted for most forms of credit, even after being discharged. Ultimately the decision to lend is down to each individual lender, but you may well find that even some sub-prime lenders might be less inclined to loan credit during this time.

Until you are discharged from bankruptcy, it is against the law to borrow more than £500 without disclosing your insolvency during the application, which will significantly affect the number of places likely to grant you credit. Even after being discharged, you are likely to find it very difficult to obtain any sort of credit, despite the fact you’re no longer restricted to the amount you’re likely to be able to borrow.

Even once six years have passed and a bankruptcy no longer appears on your Credit Report, prospective lenders may ask if you’ve ever been declared bankrupt during your application. You are legally-bound to disclose this information and could forfeit the credit agreement if the lender finds that you have previously been declared bankrupt.

This is particularly risky if you’re applying for a mortgage, where last-minute bankruptcy checks are routinely carried out (usually a day or so before you are due to complete) and the lender can reserve the right to back out of the agreement at this point.

As with all aspects of your Credit Report, knowing what is being reported about you and when the information is likely to change is key. While bankruptcy will severely inhibit your ability to get new forms of credit, there will come a time when it is automatically removed from your Credit Report and (depending on what other information is being reported) your Credit Rating could improve as a result.

To see what is being reported about you, you can try checkmyfile free for 30 days, then for just £14.99 a month, which you can cancel anytime online, or by phone or email.

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