In Australia, the typical duration of bankruptcy is three years and one day from the date your bankruptcy application is accepted. During this time, a trustee is appointed to help you clear your debts or resolve issues with your creditors. However, the names of those declared bankrupt are listed in the National Personal Insolvency Index (NPII), which is a permanent, publicly-searchable record.
Bankruptcies and insolvencies are among the many incidents tracked by credit reporting agencies that have an impact on your credit score. These incidents have a deeper and longer-term impact on your credit score than other incidents such as missing a bill payment or making too many credit inquiries. Once your bankruptcy is reported to the credit reporting agencies, they will update your credit score, and you’ll see a fall in your credit score. The incident will also most likely be included in your credit report for at least five years, or longer if you don’t discharge your bankruptcy by then.
What is your credit score after bankruptcy?
If your debt is getting on top of you for whatever reason, you may be forced to file for bankruptcy. While going through a bankruptcy proceeding may relieve you of the burden of paying off some of your debts, there are long-lasting consequences that you need to consider.
Since bankruptcy is considered a public concern, it becomes part of your credit history even after you discharge it. This ensures that lenders or others you’re looking to enter a financial agreement with can find out about your bankruptcy, you are also obligated to inform them directly. The credit reporting agency will also include your bankruptcy on your credit file for either five or two years from the date your bankruptcy is considered discharged or cleared. This is based on the calculation that the usual duration of bankruptcy is three years and one day. If, however, your bankruptcy trustee has any objections, this can get extended to as much as eight years.
Some of your creditors may have also reported payment delays to the credit reporting agency before you declared bankruptcy. If you had a good credit score before you started facing financial issues, it might’ve decreased due to these incidents. You may then see it reduce even further once you’ve declared bankruptcy.
How to improve your credit score after bankruptcy
A low credit score can make it difficult for you to borrow money, whether or not you have a bankruptcy listed on your credit report. Bankruptcy is, however, seen as one of the worst marks you can have on your credit file. Despite this, you can take steps to improve your credit score after bankruptcy. Some of the steps you can take include:
- Pay off all debts in time: You can work out a suitable payment plan with your credit card company or other lenders. You can even get the help of your bankruptcy trustee, to build a plan helps you clear all outstanding debts at the earliest possible chance. You should make sure that you make as many payments as possible by the due date, or renegotiate the repayment terms with the lender so that they don’t report a default against you.
- Don't apply for new credit: It’s equally important not to take up new debt until your bankruptcy is off your file. If you really need the credit, discuss it with your bankruptcy trustee. You can then plan in a way to ensure you repay it without further risking your financial well-being. You may also find it difficult to borrow while going through a bankruptcy or may face strict repayment terms.
- Save as much as possible: Having healthy savings can help you settle existing or future debts. It also gives lenders a better opinion about your financial responsibility and ability to repay debt. You may want to find a way to increase your income, or you may need to moderate your expenses, to build up your savings.
- Check your credit score from time to time: Since you can check your credit score for free, you should plan on doing so as you work towards exiting bankruptcy. This can help you get a sense of how repaying and avoiding debt and building savings are helping improve your credit score.
How soon will my credit score improve after bankruptcy?
Once you work your way out of debt and start taking steps to rebuild your credit score after bankruptcy, consider checking your credit score often. This can give you an idea of the rate at which credit reporting agencies update your credit score. You should remember that your credit score may not increase significantly as long as the bankruptcy is part of your credit history. Be careful of people who approach you and claim they can get your credit history cleaned. Credit reporting agencies are the only people who can clear your credit file and do so at specified times. You may be able to approach them to have any incidents removed sooner if you have sufficient evidence to convince them.
In case you need advice on the credit transactions that can help you improve credit score after bankruptcy, consider consulting a financial counsellor. They don’t have access to the methods used by credit reporting agencies, but their knowledge can help you restore your financial health and avoid further debt.