Can I Get A Mortgage If I Have Been Bankrupt?

Bankruptcy severely affects your credit worthiness and creditors often hesitate in lending you money, if you ever have been declared bankrupt. When you have been discharged from bankruptcy, there is a thin chance that you could be considered for a loan.

But if you have been classified as "undischarged" bankrupt, getting credit from the market can be a distant dream. Being an undischarged bankrupt, if you obtain a credit of above £500 from the market hiding your bankruptcy status, it can be considered as a criminal offence. No matter, you raise this amount from a single creditor or from several creditors; the criminal offence will apply on you in such a case. It’s your responsibility to disclose your bankruptcy information before taking the credit, whether you have been asked or not. If you are an undischarged bankrupt, getting credit will be very difficult although it’s not impossible.

For an undischarged bankrupt, buying a property under the ‘Right To Buy’ plan will also be not possible. Buying properties at such places, where housing associations generally purchase their homes at a discount prices, will be difficult for an undischarged bankrupt.

In normal cases, with the termination of your bankruptcy period, you are discharged from your bankruptcy. But despite you are discharged from your bankruptcy, the details of your bankruptcy will be recorded on the files maintained by credit reference agencies. They maintain such files for up to six years from the date of your bankruptcy.

Many lenders prefer to check these files maintained by credit reference agencies before considering your loan application and the bankruptcy reports on your credit files make your chances bleak of getting credit in the marketplace. So, once you have been bankrupt, chances of obtaining a mortgage are very rare. It’s less likely that a bank or a building society will consider your case and will give you a mortgage. And in any case, they show their willingness in lending you money they may offer it at a very high rate of interest. They will demand a high rate of interest to cover the extra risk that they perceive in your case because of your bankruptcy history. Besides charging you with a high rate of interest, they may demand for a substantial deposit as well.

However, a mortgage is possibly easier to be availed by a discharged bankrupt, as it is available to you against your property. If your bankruptcy was due to unavoidable circumstances, then banks will consider your application more favourably. For example, if you couldn’t pay off your debts because of your severe illness or prolonged unemployment and had to declare yourself bankrupt, the bank will become somehow lenient towards you. However, to get a mortgage, you need to convince your bank that now you are in a better financial condition.

Moreover these days, there are lots many companies specialised in offering mortgages to people with poor credit records and even to those who have been declared bankrupt. However, people with poor credit ratings may have to pay higher rates of interest, compared to their counterparts who enjoy good credit ratings.

Here are some cases that will be helpful to understand how bankruptcy can affect your mortgage obtaining capabilities and what you need to do in order to get a mortgage if you have been a bankrupt.

1. If you want to get a mortgage immediately after discharge from your bankruptcy, you will have to make a minimum 30% deposit of your mortgage value. First time buyers and self-employed people will be given preference in such type of mortgages.

2. After one year of discharge from your bankruptcy, a person who already owns a home will have to make a minimum 25% deposit of the mortgage value. A first time buyer who is either employed or self-employed will also have to make a 25% deposit.

3. After two years of discharge from your bankruptcy, a person who already owns a home will have to make a minimum 20% deposit of the mortgage value. A first time buyer who is either employed or self-employed will also have to make a 20% deposit.

4. After three years of discharge from your bankruptcy, a person will have to make a minimum 15% deposit of the mortgage value.

Your bankruptcy can only be cancelled by the court following a process called annulment of bankruptcy. With cancellation of your bankruptcy, you get relief from all such negativities that the bankruptcy can have on a person. First of all you need to send copies of your bankruptcy annulment certificate to all credit reference agencies so that they can remove all information about your bankruptcy from the credit reports and improve your chances of getting credit in the market.

Your bankruptcy record will remain in your credit report for at least six years or even longer from the date you were declared bankrupt. You will have to undergo many restrictions during this period and obtaining mortgage is one of them. While obtaining mortgage is very difficult after your bankruptcy, it’s not impossible, though.

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