Even the word “bankruptcy” sounds terrifying, and the implications of it on our daily lives, financial histories, and credit scores are a nightmare. However, declaring bankruptcy may be a game-changer if you face financial difficulties. Still, you will have the opportunity to seek the assistance you require and take some practical steps to live a debt-free life.
What is bankruptcy?
Bankruptcy is a legal procedure that starts when a person or a business company cannot repay the amount they borrowed. The process begins when the lender files the petition. In addition, the borrower’s property value is measured, estimated, and used to repay the down payment portion. The U.S. Bankruptcy Code contains guidelines for bankruptcy proceedings, which federal courts conduct. There are different bankruptcy forms, and Chapters of the U.S. Bankruptcy Code are frequently used to determine their type.
Although declaring bankruptcy may give you a fresh start, it will stay on your credit report for many years and make it more difficult for you to obtain a loan or debt.
How bankruptcy will impact your credit score
If you were declared bankrupt and are now debt-free, the bankruptcy will remain on your credit report for at least six years or more. The first thing a lender takes into account while applying for a mortgage is your credit score. They will review your credit score, and as bankruptcy has worsened your credit score, there are high chances that your application for a loan or mortgage will be rejected. Furthermore, if you want to apply for a loan of more than £500, you must inform the lender of your bankruptcy. Moreover, if you want a house to rent, the employer and landlord may wish to see your credit report, which has been badly affected by your bankruptcy, resulting in a decline of your request.
In addition, if you find a lender who has agreed to give you a mortgage, he will give it to you at high-interest rates just because of your bankruptcy, which makes you a high-risk client. After being discharged from bankruptcy, they will still ask why you have been bankrupt, even if it has been removed from your credit profile (the most common question asked while applying for a mortgage after bankruptcy). If you want to check your credit profile, you can get it at Experian Credit Report.
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