Being declared bankrupt can be a major life event and it can have a dramatic impact on your finances for the foreseeable future. Don’t panic though – it is possible to get a loan after being declared bankrupt and there are many people who fully recover financially after bankruptcy.
How long does bankruptcy last?
Generally, the full term of bankruptcy is up to 5 years. This time period is made up of undischarged bankruptcy, which typically lasts for 3 years and one day. The remaining time is known as discharged bankruptcy, which can often be ended earlier.
Getting a loan in undischarged bankruptcy
This stage of bankruptcy means that you are still in the process of bankruptcy and there may still be a number of arrangements that need to be settled.
During this period, you are generally not able to apply for a loan and may also face other restrictions such as not being allowed to own limited assets or not being able to apply for credit cards or other types of loans.
Be careful about any company that offers you a loan when you are still in undischarged bankruptcy. There are specialist lenders who will do this (depending on your credit history) however interest rates and fees can be extremely high – remember this could lead you into further financial difficulty.
Applying for a loan after being declared bankrupt
The big difference will come when you are declared as ‘discharged bankrupt’. This means that, although you will have a serious blot on your credit rating and a potentially low credit score, you will be able to apply for loans and credit products again.
There are a few things you should be aware of when applying for a loan after bankruptcy. These include:
- Stricter eligibility requirements: you may be asked for more documentation and have stricter checks done on your background and eligibility for the loan. You should always make sure you can provide any documents required and be as honest as possible with all your information.
- Higher interest rates: most people who have been declared bankrupt will be seen as high risk to lenders so it’s likely you’ll be offered loans that have higher interest rates than normal. This is to be expected but always ask an expert if you think interest rates are too extreme.
- Higher fees: there may be additional fees or high charges on early repayment and other areas of your loan so always check these out and make sure you’re familiar with them before you sign your loan agreement.
- Higher deposit: to reassure the lender that you are financially stable, they may require you to have a higher deposit if you’re looking to get a loan after being declared bankrupt. This will also lower the overall loan amount that you need to borrow.
It’s really important to move forwards after bankruptcy and avoid getting yourself into future financial problems. Never borrow money that you can’t afford to pay back and take your time getting yourself back on your feet.
Build up your credit rating slowly and steadily – with stable employment and proof of regular repayments on existing loans helping to improve your credit score.