What effect does bankruptcy have on your credit rating?

 

What is bankruptcy?

Bankruptcy is obtained through a court order. It allows you to discharge all your debts and start again. It is a last resort for those who are insolvent and cannot pay their creditors. Bankruptcy has several consequences which people should be aware of before they petition the court for a bankruptcy order. These consequences include losing control over their assets, including their home; having their assets sold and the proceeds distributed to their creditors; an investigation into their financial affairs; restrictions placed on their activities; and a negative effect on their credit rating. Therefore people are highly advised to obtain legal advice from a solicitor who specialises in bankruptcy before filing their bankruptcy petition.

How does it affect your credit rating?

Credit reference agencies maintain credit reference files on individuals. Lenders check these files when a person applies for a loan, such as a mortgage, or when a person applies for credit. Credit reference agencies keep an eye on the London Gazette which is an official publication where Official Receivers advertise bankruptcy orders that have been ordered by the court. When a person is made bankrupt, their order is advertised in the London Gazette and the credit reference agencies record this in the person’s credit reference file.

When a lender sees the bankruptcy order in a person’s credit reference file, they will be reluctant to lend to that person as the bankruptcy order shows that they have not been able to honour their commitments in the past. Bankrupts may find it much harder to obtain a loan or credit during their bankruptcy.

The bankruptcy order remains of the person’s credit reference file for six years after the date of the court bankruptcy order. After six years, the credit reference agencies will automatically remove the notice. However, a bankruptcy restrictions order can remain on a file for as long as 15 years.

If you are looking for a specialist bankruptcy solicitor, we can help. Call us on 0800 1777 162 or fill in the web-form and speak to one of our trained advisors. We can put you in touch with the right bankruptcy solicitors in your location and get you the advice you need.

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