Why Going Bankrupt May Not be the Answer to Your Financial Mess

January 13, 2024
1 min read


By Credit Expert

Thursday, 25 September 2008.

We’ve let the good times roll for the past ten years and now, according to debt counselling agencies, we’re paying the price for a decade-long binge fuelled by cheap credit. Many of us are now weighed down by credit card and mortgage bills we can barely manage.

Debt counsellors say they are being flooded with calls from worried borrowers who don’t know how to cope with their debts, while The Insolvency Service reports that more than 25,000 people went bankrupt or took out an individual voluntary arrangement in the first three months of 2008.

In the UK for example, back in 2002, only an average of 6,000 people a quarter went bankrupt, which suggests that bankruptcy no longer carries a stigma.

Some people may even see insolvency as the easy way out of their debts, especially since a change in the British law in 2004 that means bankrupts can be discharged after just a year.

But that doesn’t mean that the slate has been wiped clean.

Information about a bankruptcy or Individual Voluntary Arrangement – an option that allows you to pay off an agreed proportion of your debts over a fixed period – remains on your credit report for six years and could damage your future chances of getting a loan, mortgage or credit card.

Lenders will usually see it, along with other data such as your repayment history and the number of loans or credit cards you have or have had, whenever you apply for credit. As a result, they may consider that there is a risk that you will not repay what you owe and either turn you down or set stringent conditions and high interest rates.

It is worth looking through your credit report carefully, to ensure that all the information it contains is up to date and accurately reflects your circumstances. If there are special circumstances surrounding an entry, you can contact the credit reference agency and explain what happened. For example, you might have missed a few repayments because you had an accident, but have never had problems before or since.

You can even give the background to a bankruptcy, if you believe it will help lenders to make decisions in the future. They can add a note about this to your credit report, which will be seen by future lenders.

Regular monitoring of your credit report will also help you to keep control of your finances, allowing you to see credit accounts in a single, simple document. That makes it less easy to ignore or even forget outstanding loans or the status of your repayments and can help to keep you out of trouble.

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