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Good Credit After Bankruptcy: Is It Possible?

Rachel Horan

Rachel Horan

June 8, 20213 minute read
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Bankruptcy can be one of the most difficult decisions a person makes, but sometimes, it’s necessary. If you’ve been declared bankrupt, you may be feeling uncertain about your financial future. Does this mean that all hope is lost, and there is no chance of a good credit score in the future?

On this page:

    Below, we give a rundown of bankruptcy and how it affects your credit score. Plus, we look at whether it is possible to have good credit after declaring bankruptcy.

    What is bankruptcy?

    In a nutshell, bankruptcy is the legal process of being declared unable to pay your debts. There are two main ways you can become bankrupt:

    • You can enter a voluntary bankruptcy, or;
    • A creditor can bankrupt you through a court process called a sequestration order.

    Generally, bankruptcy will release you from most of your debts. Typically, you will be bankrupt for three years and one day. Though, the implications of bankruptcy can last longer than this period. In Australia, bankruptcies are legislated by the Bankruptcy Act 1966 and governed by the Australian Financial Security Authority (AFSA).

    What are the implications of declaring bankruptcy?

    When declared bankrupt, you are appointed a trustee that handles your affairs during your bankruptcy. As a consequence, the trustee is able to claim and sell certain assets to pay off debts. There are other consequences of bankruptcy, including:

    • Your income, employment, and business can be affected;
    • Ability to travel overseas can be limited;
    • Name appears on the National Personal Insolvency Index (NPII) permanently;
    • Ability to get credit in the future can be affected;
    • Assets, such as your home, can be claimed (in some instances);
    • May not be released from all of your debts.

    How does bankruptcy affect your credit score?

    Your credit score is a number calculated based on your credit history. It represents your reliability as a borrower to potential creditors.

    Typically, a lender will use your credit score as a major factor in deciding whether you are eligible for a credit product. It also dictates the interest rate you are likely to get charged. As a general rule-of-thumb, the lower your credit score, the higher interest rate you can expect.

    Unfortunately, credit reporting agencies do not tell exactly how much bankruptcy affects your credit score. However, it can be assumed that it significantly damages your credit score. For example, illion states that a ‘zero score’ can indicate something negative on your credit file. This can include a bankruptcy or court judgement.

    Generally, bankruptcy lasts three years and one day or, in some cases, up to eight years. However, it is listed on your credit report for:

    • Five years from the date you enter a bankruptcy;
    • Two years from the date your bankruptcy ends (whichever is later).

    Is it possible to have good credit after bankruptcy?

    There is no way to ‘fix’ your credit score, as it represents all of your credit history. However, there are some steps you can take to help improve a bad credit score:

    • Pay your existing debts on time;
    • Check your credit report regularly for any inaccuracies;
    • Lower your credit limit (if possible);
    • Limit your number of credit applications.

    Can I still get a loan after bankruptcy?

    While a bad credit score can make your borrowing options limited, it can still be possible to get a loan after bankruptcy.

    However, many lenders have a policy to decline any applicants that are bankrupt. Even after being discharged from bankruptcy, a lender can search your name in the NPII and choose to decline your loan application.

    Depending on your individual bankruptcy, it could potentially be a criminal offence to obtain or try to obtain credit. If you are unsure whether this applies to you, we recommend you do your research or seek legal advice.

    If you do decide to apply for a loan with a bankruptcy, you can expect to pay high interest rates and be limited in your borrowing amount. If you are applying to borrow over a certain limit specified by the Bankruptcy Act, you must let the lender know of your bankruptcy.

    Helpful financial and legal support resources

    If you are in financial distress, there are free financial and legal advice resources available in Australia:

    • National Debt Helpline (NDH): 1800 007 007
    • In each state, there are community legal services and legal aid agencies available in each state. More information is available on the AFSA website.
    • National Self-Representation Service is provided across Australia through the following organisations:

    Copyright © www.jacarandafinance.com.au Jacaranda Finance Pty Ltd ® ABN 53 162 078 195 Australian Credit Licence 456 404, Pawnbroking License Number 4221738. The information on this web-page is general information and does not take into account your objectives, financial situation or needs. Information provided on this website is general in nature and does not constitute financial advice.

    Rachel Horan
    Rachel Horan

    Written by Rachel Horan

    Rachel Horan is a Content Writer for Jacaranda Finance. Rachel has previously produced content for Brisbane City Council, Black & White Cabs, and Clubs Queensland. She has a Bachelor of Mass Communication with Distinction from the Queensland University of Technology.

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