Buying A Home And Bankruptcy
How long after bankruptcy can you buy a home?
This is a tricky question to answer but, unquestionably, buying a home is a costly affair and many people need to borrow in order to afford it. Bankruptcy itself, though, has a big affect on your ability to borrow and secure credit.
Once declared bankrupt all bank accounts/building society accounts are frozen and all moneys therein – plus all bankcards, credit cards and chequebooks – passes into the control of the Official Receiver (the court official who deals with your debts on your behalf).
Any extra income floating around would also be tied-up in regular payments into the Bankruptcy Estate over a specific period of time (in the form of IPAs or IPOs).
Consequently, once declared bankrupt it’s unlikely you’ll have the means to buy a home without help, making borrowing/credit even more important.
However, a term of the ensuing Bankruptcy Restrictions placed upon you makes it plain that, until discharged, a bankrupt may not obtain credit of £500 or more – either alone or jointly with any another person, without first disclosing the bankruptcy (failure to do so is a criminal offence).
After the bankruptcy order, it’s possible to open new bank and/or building society accounts. It’s down to the discretion of the bank/building society whether to let you do so or not and many will refuse. Even if they agree, it’s likely they will impose conditions and limitations.
So, the outlook for borrowing to buying a home in the period immediately after a bankruptcy order is made (i.e. during bankruptcy) is highly unfavourable.
This scenario would last until you were “Discharged” (released) from bankruptcy – normally 12 months, on the anniversary of the court granting the bankruptcy order.
Of course, if the Official Receiver deemed you to have acted dishonestly at any point, subjecting you to a Bankruptcy Restrictions Order (BRO) as a result, then all the original Restrictions will be reinforced for a set period of between two and 15 years.
Even once discharged, the fact that you’ve been bankrupt will severely affect your ability to borrow money – creditors will be more unwilling to lend to someone with a track record of struggling to pay money back.
Creditors determine whether you’re a high-risk by looking over your Credit Reference File – a record of your credit history. Among other things this file includes information gathered from public records and these include previous bankruptcies.
The File helps inform credit agencies what Credit Rating you have. If your Rating is low, then they may refuse to lend you money/credit and it’s vitally important to note that bankruptcy severely lowers credit scores.
All information kept on Credit Reference Files, including bankruptcy, stands for a period of six years. However, if you are refused by one Credit Agency it does not mean you will not be successful with another, as for how long it may take for one to agree to lend you money is hard to say.
But lenders don’t expect people to have perfect credit ratings and there’re ways to improve a poor credit history, including paying bills/repayments in full and on time. Any missed or late payments will stay on your File for a period of at least three years after which it will become much easier to secure the means with which to buy a home.