If you’re facing serious debts, your accounts have become insolvent or you have creditors chasing you for late payments, then declaring bankruptcy is one way to secure a fresh financial start.
However, bankruptcy can have severe, long-lasting consequences on your finances and your personal life, and it’s a legal process that should be thoroughly considered before being taken. One of the most important considerations is the way bankruptcy affects your credit report and your ability to secure credit in the future.
In this article, the experts at Irwin Insolvency tackle the question, ‘how long does bankruptcy stay on your credit report?’ We explain for how long your credit report will be negatively affected after declaring bankruptcy.
What Is Bankruptcy?
Before we delve into the question, ‘how long does bankruptcy stay on your credit report?’ let’s take a brief overview of what bankruptcy is and what declaring bankruptcy entails.
Bankruptcy is a formal, legal process that must be approved by a court of law. Bankruptcy can only be applied to individuals – and not to businesses, companies or corporations in the United Kingdom – and it’s a process that’s undertaken if you can no longer afford to pay your debts. The bankruptcy process costs £680 and is administered by the UK’s Insolvency Service.
Bankruptcy can result in the wiping out of large debts and a fresh financial start after the initial 12-month bankruptcy period. But there are many other implications to consider as well. The major implications of bankruptcy include:
- Major debts are written off after 12 months.
- You’re legally classed as an undischarged bankrupt for 12 months.
- Creditors are no longer allowed to harass you or ask for money.
- You lose control of your bank accounts and finances to an official receiver (a licensed insolvency practitioner who takes over control of your finances).
- You can lose major assets that are held in your name, including your family home or any vehicles you own.
- Any tenancy agreements with a landlord may be terminated.
- Your business can be sold off and your employees may lose their jobs.
- You may be forced to pay towards an income payment order for up to three years.
- Many personal debts, including student loans or council fines, will still remain even after declaring bankruptcy.
- Bankruptcy remains on your credit report for a number of years, and it can be difficult to secure credit in the future.
- Bankruptcy is made public knowledge, and declaring bankruptcy can result in your removal from any position of trust you hold in the community. If you’re a lawyer, councillor, Member of Parliament or on a board of trustees for a charity, then you will lose your position.
Bankruptcy Timeline: How Long Does Bankruptcy Stay on Your Credit Report?
So how long does the bankruptcy process last, and how long does bankruptcy stay on your credit report? The short answer is that the bankruptcy process lasts 12 months and remains on your credit score for six years, but let’s look at the timeline in more detail to understand its nuances.
The bankruptcy process begins once the courts have approved your application for bankruptcy. In the majority of cases, bankruptcy is applied for by an individual, but if you owe your creditors over £5,000, then those creditors can also ask the courts to legally declare you bankrupt.
Once the bankruptcy has been approved, you’ll legally be declared an undischarged bankrupt. Your name will be placed on the Insolvency Register and your bankruptcy will be made public knowledge. For the next 12 months, you’ll be an undischarged bankrupt. This means that an official receiver will control your accounts and you won’t legally be able to apply for any credit over £500.
After 12 months, you’ll be removed from the insolvency register. You’re discharged from your bankruptcy (and are therefore no longer an undischarged bankrupt) and will now technically be able to apply for lines of credit over £500 (although bankruptcy will remain on your credit score for several more years).
It doesn’t end there however, because you might have to make income payment orders for the next three years. Income payment orders are court-ordered payments that see a certain percentage of your monthly income taken away in order to pay off your debts to creditors. The terms of an income payment order depend on your personal financial circumstances at the time of your bankruptcy.
Bankruptcy remains on your credit score beyond this timeframe though, only being removed from your credit score after six years. Until bankruptcy is removed from your credit score, you will still feel the effects of your bankruptcy, as you’ll find it incredibly difficult to source any lines of credit, including bank loans, credit cards and mortgages.
Here’s a breakdown of the complete bankruptcy timeline you can expect:
- For 12 months you are an undischarged bankrupt.
- After 12 months you’ll be removed from the Insolvency Register.
- After three years, any income payment orders will end.
- After six years, the bankruptcy is finally removed from your credit report.
What Happens When Bankruptcy Is Removed from Your Credit Report?
Okay, so what happens next? What happens when your bankruptcy has finally been removed from your credit score after six years of waiting?
Once that six-year waiting period is over, then bankruptcy should automatically be removed from your credit score. It’s best to double-check this however. You can do this by consulting a credit service such as Experian, which can quickly check your credit score.
After six years, you can now freely apply for credit without worrying that your prior bankruptcy will appear in any credit searches. This can result in much lower interest rates and more favourable repayment terms for you, while you’ll also be able to source larger sums of money than you could before.
However, while the bankruptcy no longer remains on your credit report, there’s still one persistent caveat you have to follow. While you don’t have to tell a potential creditor that you were once declared bankrupt, if the creditor asks if you have ever declared bankruptcy, then you’re legally obliged to answer truthfully.
Unfortunately, this can affect the amount of money a lender is willing to provide, or it can result in higher interest rates or harsher repayment terms many years after your bankruptcy has ended. Lenders, such as banks or mortgage brokers, are likely to ask this question, but they will take into account your current financial circumstances and your progress since your bankruptcy ended. If you’ve proven to be financially reliable since your bankruptcy, then after six years the financial fallout should be minimised.
As you can see, declaring bankruptcy isn’t something that should ever be taken lightly. Always seek the professional advice of a licensed insolvency practitioner before filing for bankruptcy, as the effects can last for many years to come.
Can I Apply for Credit with Bankruptcy on My Credit Score?
It’s possible to apply for credit before the six-year term is up and before bankruptcy is removed from your credit report.
In fact, it’s possible to apply for small amounts of credit during your 12-month bankruptcy period. Even while you are an undischarged bankrupt, you can legally apply for up to £500 of credit without having to tell the lender that you’re bankrupt.
Above this amount, you can still apply, but you have to legally disclose that you are currently an undischarged bankrupt. Except in very unusual circumstances, the fact that you are an undischarged bankrupt will ordinarily stop a creditor from loaning you money. The only people likely to provide credit above this amount are payday lenders, and they’ll be charging incredibly high interest rates.
After your bankruptcy period has ended you can start applying for more credit, but remember the bankruptcy remains on your credit score and, if asked, you’ll still have to tell the creditor that you went bankrupt. The reality is that this makes it difficult for you to source credit, particularly if the creditor makes thorough checks, which they usually will.
For the next six years until the bankruptcy is removed from your credit score, you’ll have to suffer higher interest rates, more invasive background checks and much stricter repayment terms.
When Should I Start Applying for Credit Again?
As soon as you are discharged from your bankruptcy, it’s important that you start rebuilding your credit rating. You can do this through simple things like paying your utilities and phone bills on time, and not going into overdraft.
In fact, as soon as you can begin applying for credit again, it’s a good idea to start. The sooner you do, the sooner you’re going to rebuild your credit score for the better. However, as we’ve already discussed, it’s going to be difficult to take out any credit at all, at least at favourable rates.
What you can do is take out small quantities of credit. Often, your bank or former credit provider will allow you to use a secured credit card. This is a special type of credit card that has strict limits imposed on it. You’ll only be able to take out credit that you can pay back each month, and it will prevent you getting into debt again while also proving you can be trusted with credit.
For larger lines of credit, you can also approach friends and family. This could be important if you need to rent a home, as any prospective landlord is likely to ask for a guarantor in light of your recent bankruptcy. While not ideal, it’s one way to start building up trust again.
Can I Still Get a Mortgage After Going Bankrupt?
Without access to a large deposit (that covers a high percentage of the value of a property) then it’s unlikely you’ll be able to secure a mortgage before the six years is up and the bankruptcy has been removed from your credit report.
If you try to secure a mortgage before this, then you’re going to need a large cash deposit and a guarantor that’s willing to guarantee your monthly repayments. Banks always carry out stringent background checks before approving mortgages, and they’ll not only check your credit rating, but they’ll want to know why you became bankrupt in the first place.
You’ll likely face higher interest rates because of the bankruptcy, and stricter repayment terms. This, of course, costs you more money in the long term, but for the banks it’s seen as extra security. This can still apply after the six years are up, as a bank will question you about your financial past.
As with any line of credit, you need to prove to the mortgage lender that you’re now a safe financial bet. You can do this by rebuilding your credit rating, taking out credit where you can, saving up as large a deposit as possible, and always repaying any loans and bills on time.
For most people who have gone bankrupt, it’s best to wait until six years has passed and the bankruptcy has been removed from your credit report before applying for a mortgage. This gives you time to rebuild your credit score, save up the money needed for the deposit, and get your finances back in order. The stronger a case you can build as to why a bank should give you the credit and the mortgage you need, the better your chance of securing it.
Contact Irwin Insolvency for More Information on Bankruptcy
Bankruptcy can be the best way for individuals to have a fresh financial start, but there are many other insolvency measures that should always be considered first.
Bankruptcy can have severe, long term consequences – and it can stay on your credit report for many years to come. We recommend that you seek the advice of an experienced insolvency practitioner to seriously consider your options first.
To find out more about bankruptcy, contact Irwin Insolvency for your free consultation.