How Bankruptcy Affects Your Credit Score

The decision to apply for bankruptcy is never one that’s taken lightly and is often seen as a last resort. You may decide to opt for bankruptcy if your debts have grown to such a level that you have no real hope of paying them off. Though the ability to clear debts can be appealing, if you have any valuable assets that aren’t integral to your day-to-day life, you can expect to lose them, and you could even lose your home if your partner cannot purchase your share. You could have all your bank accounts closed – aside from a basic one used to pay bills – and you can expect people to find out about your new status as it will be made public. You can include many debts in your bankruptcy but won’t be able to clear certain obligations like court fines, child maintenance and student loans.

Your bankruptcy order will appear on your credit report for at least six years from the date of the order being made. Should you wish to borrow more than £500, you will need to tell the lender that you are or have been bankrupt, and you could find it extremely hard to get credit not just during the bankruptcy period but for many years after you are discharged. If you can find someone willing to lend to you after your bankruptcy, you may be charged higher levels of interest due to being regarded as a high-risk customer. If you are applying for a mortgage, you may be asked if you have ever been bankrupt, and will be obliged to tell the lender about it even if it has been absent from your credit report for many years.

Though most bankruptcies last for 12 months, they can last for up to 15 years if you fail to co-operate with authorities like the Official Receiver during the process, or if you act in a dishonest manner. Bankruptcy can also make you ineligible to take certain jobs, and potentially, your landlord can have you evicted if you become bankrupt whilst you are renting a property from them.

You can expect your chances of obtaining credit to rise once the bankruptcy disappears from your report. Some people have found it tough to obtain credit because their reports haven’t been updated, but help is available if you are no longer bankrupt and need the information to show that no outstanding balance is owed on certain debts. You may wish to add a short statement to your report if you feel potential lenders require additional context regarding your bankruptcy and debts. If you can obtain some credit whilst your bankruptcy shows on your file and manage it well, this may make it easier to obtain future credit, providing lenders with evidence that you are capable of repaying credit when it is due. A new mobile phone contract or credit card for people with poor credit histories can help you get your credit score back on track.

Call today on 0800 009 3173 for more information about bankruptcy and legal help.

How to Identify an Insolvency Scam

Whether you’re a company or an individual, insolvency ultimately leads to an individual voluntary arrangement, company voluntary arrangement, or bankruptcy. Any such end point will protect those in trouble from their creditors, and may result in the creditors losing some of the money they are owed.

Emotional Stress, Bankruptcy, Finance.

For those who have genuinely hit hard times, these are very worthwhile processes that can aid their financial rehabilitation whilst salvaging something for those they owe. Facing insolvency is not pleasant for most of us. For those less scrupulous, the end results may present an opportunity.

Fraudulent Practices

There are several ways in which the insolvency process is open to abuse. The most obvious is when a company attempts to trade while insolvent. Insolvency is a legal state when a company or individual’s liabilities outweigh their assets, and they’re unable to continue paying their bills. Whether or not insolvency has been officially declared, knowingly trading in those circumstances is unlawful. If it’s a company involved, the directors may become personally liable for the debts incurred.

Rise Like a Phoenix

Trading while insolvent is one thing, but there are those who would go to greater lengths to avoid their responsibilities. The mythical Phoenix is a bird that dies in flames, before being reborn out of its own ashes. A phoenix company operates in a similar way.

When a company runs into difficulties, the directors transfer assets and viable business into another company with a similar purpose, in order to continue business as usual. They leave the old company to become insolvent, taking all the debts with it.

The practice of forming a new company out of the ruins of the old is quite legal in the UK, but it can also be used by dishonest directors to avoid paying off creditors, or to sidestep employment legislation.

How to Spot It

Using a Phoenix company as a means of circumventing insolvency is fraud. If assets are removed from the original company shortly before it becomes insolvent, there are fewer resources available to pay off creditors and staff. If you’re owed money by a company that has been declared insolvent, there are things you can do to protect against this kind of action.

Do some research into the directors of the company that owes you money, and look out for any new companies that have been set up in their names. Don’t give up on your claim even if the phoenix company denies liability.

Another sign is if your company has given trade credit to a company that has declared insolvency within a short period afterwards. Be particularly wary if you’re owed money and nobody is responding to any communications you make. This suggests that everyone’s cleared out and moved elsewhere.

If such a situation arises, inform the Financial Conduct Authority or the Insolvency Service promptly.

Not So Sure?

Find out more about all aspects of insolvency by calling Irwin Insolvency. We offer good, impartial advice whether you’re facing difficult financial conditions yourself or dealing with customers who are insolvent.