Bankruptcy is the legal term to describe the financial condition of a person or a business unable to repay outstanding debts. The bankruptcy declaration process starts with a petition filed by the debtor. In some cases, though rarely, creditors also file the claim of bankruptcy against a borrower. The debtor’s assets are evaluated and used to repay outstanding debt. Bankruptcy offers the bankrupt individual or business an opportunity to survive and grow again with fresh start fresh forgiving the debts that can’t be paid. Bankruptcy provides the creditors with a chance to recover their money by selling the individual’s /business’s assets in liquidation state. Bankrupt usually is  ‘discharged’ (loans for discharged bankrupts UK) from bankruptcy after 12 months, and the remaining unsecured debts are written off.

Loan during Bankruptcy (loans for bankrupts):

During the bankruptcy period, you must disclose your bankruptcy state while borrowing more than £500; it means, you are more unlikely to get the credit from the majority of private lenders. However, it doesn’t say that it is impossible to borrow, but it is undoubtedly a tough task because the majority of direct lending agencies will turn the application down. If a lender accepts your request, it’s likely to be only for a low amount and short-term. The loan, sanctioned to an ex bankrupts borrower, comes at a higher interest rate as well as strong terms and conditions; therefore, it is better to stay away from borrowing during bankruptcy.

Loan after Bankruptcy:

Even after being discharged from bankruptcy, borrowing is a costlier and complicated process. Bankruptcy stays on credit file for six years, so the lenders can see it while assessing your credibility. Once being declared bankrupt delivers long-term impacts on your reliability. When you initiate borrowing after the bankruptcy period, you have minimal options to choose the lenders as most of regular banks will deny your request in one go almost instantly. The only alternative to get some financial help of low amount is to apply at online direct loan stores advertising for bankruptcy loans. Yes, some loan stores specialise in lending to bankrupt people.

Alternatives to Loan after Bankruptcy:

After being declared bankrupt, borrowing from a private agency is the most convenient option but it is not the only one. There are some credit-building credit cards available in the UK issued to bad credit holders even to the people with bankruptcy label. These cards give you low credit limit at higher interest rate but with an advantage of interest rate free period. If you use the credited money responsibly without getting any penalty for late payment, it is an excellent way to rebuild credit history demonstrating that you are a responsible and capable borrower.

Approaching to a credit union is another alternative that you should necessarily consider. The credit union in the UK is a group of members set up to invest and lend money to each other. The lending is a high-interest rate, but it is a better option than the payday loan or other high-interest rate credits. The primary qualification for borrowing from a credit union is to be a member of a credit union; therefore, search a credit union in your area to join. Credit union is a democratic self-help organization set up to financially help the members of a particular sector or the industry. As a member of a credit union, you also get the advantage of buying cheaper goods. The maximum interest rate charge for a smaller loan is 3% / month on reducing balance, it works to be about 42.6% APR; it means even the most expensive borrowing from a credit union is still eight times cheaper comparative to a payday loan.

Are You Debt Free After Being Declared Bankrupt?

Most debts at the time of bankruptcy order are covered by bankruptcy; so, these are automatically written off after bankruptcy period, but you may still have the responsibility to payback certain types of debt. The debts you will have to pay even after bankruptcy are:

  • Fines by magistrates court
  • Any payment ordered by court under confiscation order
  • Maintenance payment and child support payment
  • Student loan
  • Secured loan
  • Debts owed because of death or personal injury of another person
  • Debt from the social fund
  • Tax credit overpayments and some benefits

Bankruptcy can’t stop the mortgage lender to repossess the mortgaged home if you are behind the mortgage. If the sold-out value is not enough to pay off the outstanding mortgage or secured debt, the balance debt won’t stand as guaranteed; it means you will be released from the mortgaged debt after the bankruptcy ends.

Managing Loan after Bankruptcy: 

So, you know that the borrowing after bankruptcy is a great challenge more complex than in normal financial crisis conditions. Now, you have limited options to choose the lenders that too from the private sector. The affordability of loan is naturally strict because of high-interest rate. The granted amount is also small and the repayment period is also limited just the months. Success highly depends on you. You must have a strategy structured keeping in mind all the aspects of usage and repayment.

  • Assess the need for borrowing
  • Postpone borrowing until bankruptcy ends
  • Optimize the loan amount to make it minimum
  • Try to get a guarantor; although it is a marathon task
  • Develop the habit of disciplined expenditure
  • Save more to repay more with each monthly instalment
  • Try to maximize the benefits of interest rate free period of credit card
  • Pay all the bills on time to rebuild credit history
  • Ask the court to reconsider for writing off other debts incomplete or part

Concluding Note:

Bankruptcies in the UK

Bankruptcies in the UK increased to 4725 businesses in the 4th quarter of 2018 from 4308 businesses in the 3rd quarter of 2018. There is a significant increase in bankruptcy cases from July 2018 to January 2019. The numbers of individuals declared bankrupt hit the six-year high in three months to June 2019 primarily because from high inflation, low wage rises and large scale benefit cuts. The registered individual bankruptcy cases were 28,951 in the 2nd quarter of 2019 with jump 27.3% on same period of 2018. It means the financial challenges for the common British households are getting more than before complex and tough to manage; therefore, borrowing especially after bankruptcy should be managed carefully.