How does bankruptcy affect your credit rating?

Even before we take up the issue of the above title let us see what Bankruptcy is, because this itself, will give out the answer for the above question. Bankruptcy is a situation in which a person is surrounded by huge amount of debts that he had taken at various times and finally he is in no position to repay the same. And this is the first instance where his credibility has begun to shake. So what does he do? He simply surrenders into the hands of the law and accepts his inability to tackle the situation. And then the court takes up the issue and makes necessary proceedings and finally declares the person as Bankrupt.

Once declared a bankrupt, a person immediately looses his financial freedom. Many constraints come upon him. Bankruptcy has a long lasting effect on your credibility. Banks deny the facility of overdrafts and check facilities. Financial institutions would be up against sanctioning a loan for him. One may not even be able to obtain a credit card facility. This apart, even while going for an insurance policy, the premium rates would cost him higher. If a person is self-employed, his business has to down complete shutters and all its employees have to be dismissed. If he is a salaried person working for someone else, the company’s rules and regulations may force them to dismiss him from his job.
The major setback would be on the ground of credit scoring. And so also in local newspapers that publish such insolvencies. Be informed that a bankruptcy costs a person a direct 220 points that would be straight away deducted from his credit scoring calculations. And in addition to this it is effective upon a person for a period of six years according to the credit reference agency’s policies.

Once a person is declared bankrupt he has to follow guidelines called the ‘Bankruptcy Restrictions’. A bankruptcy would be recorded officially in the State’s Gazette and the Individual Insolvency Register with the person’s complete detail like name, address and the period of the Bankruptcy Restrictions The person cannot become a director of a company, nor can he, form his own company, operate and carry out businesses without informing and obtaining prior permission of the court. He has to compulsorily declare his bankruptcy status when he is availing a loan and / or getting in to do a business. Even more pathetical is that, even if he himself is a debt specialist and a qualified person, he is ripped off the authority to do his practice as an Insolvency Practitioner. And in case a person tries to overrule these restrictions laid by law, it becomes a criminal offence adding to the woe of the already difficult situation of the person.
These restrictions are applicable on the person for a period of twelve months and if there are no further complications he would be relieved of it. But the after effects will stay for a period of seven years or even more.

But, given a situation where the debts have been over burdening a person’s life and it is next to impossible to come out of it, it is definitely a preferred option but should be always the last option after everything fails. So before going for a bankruptcy filing one should go through all the after effects and make a detailed discussion with experts and knowledgeable persons. After that make analysis of the negativities and the possible relaxations that he would be getting and even then if he feels that bankruptcy would be worth going through, then he can file a petition to this effect.
One notable point is that in case of bankruptcy not all the assets of the person will be sold off and he would be left a pauper. There are certain leniencies and restrictions for the court too. Household goods and clothing and in some cases even the house is left out. The person’s saving on account of retirement plans, if is in a proper procedural manner with adequate proof, would be spared of being taken away. So even after bankruptcy he will have some amount that would help him to hold on and begin the upward journey once again.

On the other hand, when debt situations crush a person and coming out of it becomes inevitable, it is wise to go for bankruptcy. It helps in closing one dead end road and finding a way to pave a new path. Initial treading may be difficult as the road would be new, rough and uneven. But once a person endures it and begins moving he is sure to overcome the adverse situations over a course of time and then on, if he handles his finances well and takes prudent judgments, he is sure to built up his new credibility and rise above on the list of credit scoring chart.

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