The effects of bankruptcy

James Falla

• 10 Jun 2022

Technically your Bankruptcy will last for 12 months. However the effects of Bankruptcy are longer lasting. So when will your Bankruptcy be over?

Included in this article:

• When can you get a normal bank account?
• When does your credit rating go back to normal?
• How quickly can you get a mortgage?
• Job prospects and the affect on your career

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When can you get a normal bank account after bankruptcy?

Going bankrupt does not mean you will be left without a bank account. You can have a basic account which should give you a debit card and access to online banking.

The question is, when will you be allowed normal banking services such as a current account and credit facilities?

Well in terms of getting back on an even keel and avoiding getting back into debt, what’s the rush? Many people who go bankrupt actually continue to use their basic account as they feel they don’t actually need the additional services. One way of avoiding using your overdraft is not having one!

That said if you want to apply for a current account you will certainly have to wait until you are discharged (12 months from the date of your bankruptcy order). After that it will really depend on the individual bank. Some may consider you straight away, others might require you to wait longer.

Some lenders may still refuse you a current account even after you are discharged until your credit rating starts to improve.

When does your credit rating go back to normal?

Whilst you are usually bankrupt for 12 months, your credit rating will be effected for longer than this. The record you were bankrupt will remain on your credit file for 6 years. As such you ability to get credit will continue to be negatively affected for some time after you are discharged.

You will be able to get some forms of credit quicker than others. Certain so called sub prime lenders may offer you things like a credit repair credit card or car finance straight away. However it is very unlikely you will qualify for a bank loan or car finance from a main stream lender until your credit rating has started to improve.

There are things that you can actively do to improve your credit rating after you are discharged. One of the best is to start using a credit repair credit card. Make small purchases and pay them off every month. This avoids the high interest rates and builds up a record of responsible borrowing

Your credit rating will not be 100% back to normal until the record of your bankruptcy comes off your credit file. However you should be able to access most forms of unsecured borrowing before then.

How quickly can you get a mortgage after bankruptcy?

Naturally a mortgage company is going to be very cautious about lending to someone who has recently been Bankrupt. In reality you are unlikely to get a mortgage until 2 or 3 years after you have been discharged.

When you do apply, it is not just your credit rating that may be the issue. Mortgage offers to discharged bankrupts often require higher deposits. Getting even a 5% deposit is normally a challenge unless supported by a family member. Lenders may ask for a deposit of 15% or more, which with rising house prices creates a significant hurdle.

If you do get over the sizeable deposit, you then have the ongoing interest rate to consider. If you apply during the 6 years your Bankruptcy record appears on your credit file and you will face high interest rates.

Waiting until the record of your bankruptcy has come off your credit file (after 6 years) might be your best option for getting a mortgage. You should then be able to get access to a standard high street lender offering sensible interest rates.

Job prospects and effects on your career

Even though you may have thought otherwise most jobs remain unaffected by Bankruptcy. For example if you work in the civil service you might think you cannot use this debt solution. This is not the case, you can and in fact your employer will not even be told.

If you are a member of the armed services or the police bankruptcy is certainly an option for you. There will actually be little or no affect on your job. However you may need to clear it with your HR department or superior before making your application.

That said there are some roles which are more sensitive to someone becoming insolvent. These include certain positions in the financial sector, where you need to be licensed / regulated by a professional body or are a company director. You would normally need to give up these roles for the period of your bankruptcy.

Applying for a new job might become more difficult while you are bankrupt as some larger employers do not like to employ someone who is insolvent. However these issues normally only last for the 12 months and then go away.