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How long does bankruptcy stay on your credit report

Bankruptcy can be scary. Learn how it can impact your credit report.

18 November 2022Lloyd Smith 6 min read
How long does bankruptcy stay on your credit report?

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Filing for bankruptcy can be an incredibly stressful experience. But there is a silver lining to it -- Bankruptcy relieves you from your old debts and there are no more legal monetary obligations.

However, declaring bankruptcy can lead to a decrease in your credit card score, and may even make it challenging for you to get loans or credit cards in the future.

In this article, we take a look at how bankruptcy impacts your credit score and how long it stays on your credit report.

Bankruptcy is a legal proceeding that declares an individual unable to repay their debt agreement and in turn, it provides them relief for all or some of their debts. An individual is known to be legally bankrupt when the value of the assets they own is less than the value of the liabilities or debt agreements they have to pay.

Nonpayment of debts including credit card payments, house payments, car loans, cash advance loans, medical bills, and more can lead to bankruptcy.

The Australian Bankruptcy Act provides and regulates the system that enables individuals in financial hardship and stress to discharge their debts that they cannot repay at any cost. The debtor’s assets are realised and distributed to pay off their credit provider’s debt agreement according to this Bankruptcy Act.

Once a bankruptcy form is filled, it appears on your credit history for anywhere between 5-10 years from the date you declare bankruptcy.

There are two important details about the bankruptcy period that stay on your credit report

  • 5 years from the date you become bankrupt
  • 2 years from the date you are no longer considered bankrupt

You can only remove bankruptcy records from your credit file before the specified period is over if the details mentioned are inaccurate.

It's possible to dispute an entry that has been wrongly entered during declaring bankruptcy to stabilise your credit report. If you are able to defend the claim with proper evidence, the incorrect information will get removed from your file by the credit reporting agencies.

Some of the incorrect bankruptcy records that can be removed include:

  • Repaid debt agreements still showing on the report

  • Bankruptcy is still included in the credit report after 10 years starting from the original date

  • The spelling of names, dates, addresses, phone numbers, and similar information entered is incorrect

  • The wrong amount of debt was entered while filing for the bankruptcy

After you declare bankruptcy, it is reflected on your credit rating, which drops extensively and shows that you were unable to repay your debts. This can make it tough for you to borrow credit in the future due to the low credit score. Getting a personal loan, mortgage, a new credit card, and even education loans can be an extremely tough task.

However, in some situations, filing for bankruptcy can actually help clear past non-repayments. Clearing off the debt agreement from your credit report could ultimately lead to an increase in the credit rating since most of the debt will be removed from the total amount you owe to lenders. Though the bankruptcy will still reflect as a negative note on the credit report, it will not hinder you from applying for new credit.

You can still apply for different types of loans after bankruptcy filing But in most cases, you may only be able to get a loan at a higher interest rate because lenders might not see you as an ideal candidate for loans anymore. The higher interest rate is charged to secure the lender, considering you have already failed to repay your debts once.

Permanent appearance on the National Personal Insolvency Index

When you declare bankruptcy in Australia, your name appears on the National Personal Insolvency Index (NPII) forever. Banks, employers, landlords and other loan providers, can check your personal insolvency agreement on NPII online, which can in turn make it difficult for you to get new loans or a rented house.

Travel restrictions

The Australian Financial Security Authority, along with the government, also restricts some bankrupters from travelling out of the country without legal permission, and they can even ask you to surrender your passports as well.

Losing out assets

Other consequences of filing for bankruptcy in Australia include losing assets like real estate and stock options, which can be sold by the government in order to give the money back to your lenders.

Note that, there are several legal bindings that come with filing for bankruptcy, and not adhering to the guidelines can lead you to legal problems, including imprisonment. There will also be several restrictions on starting a new business or entering an employment contract.

The Australian National Debt Helpline provides help regarding this or you can also find the right financial counsellor for optimum financial advice.

Bankruptcy also affects your credit score negatively, but the impact reduces with each passing year. The first month after filing for bankruptcy you may notice a dramatic fall in the score, but as the year ends, the weight of the bankruptcy will get lesser and continue to decrease as time passes by.

When you file for voluntary bankruptcy, having fewer accounts can avoid your score from free falling.

To reduce your bankruptcy period, you need to repay your creditors the complete amount that you owe to them sooner than the specified time period.

Also note that, if your financials do not get better and you are not able to abide by the payment plan to repay your creditors, the court can consider ending your voluntary bankruptcy plan earlier than the due date to lay you off.

This is called a hardship discharge and can be applied when –

  • There is no chance of your financial conditions improving

  • There has been a complete change in the circumstances without any fault of yours

  • Your creditors have received as much money as they could by selling off your assets

  • You do not have enough income to support a repayment plan

1 - Make payments before the due date

Whenever you receive a bill for anything on your credit card, or the loan repayment due date comes closer, make sure that you pay it before the deadline. This will boost the trust of credit and loan providers in you again over time and help you increase your overall credit score.

Note that when you are unable to pay the pending bills before the due date, there is a significantly high interest applied over the amount that you own. If you keep delaying payments month after month, you may end up paying more in interest than the actual principal amount

2 - Review and monitor credit reports

Your credit report will include your credit scores as well, and checking them regularly to keep a close eye on how your credit rating is behaving will help improve your score over time. You can do a free credit score check to look into any hard inquiries that have been recorded in your report as too many inquiries against the report can also significantly affect your credit score.

Moreover, when you monitor how often your credit score is updated, you can make repayment changes by either clearing all payments together in one go or spreading them over a few days before the due date.

3 - Don't maximise your credit limit

Keeping your credit utilisation low implies that you use credit less than the money you have available. Ideally, if you have credit cards, you should never use them to their maximum credit limit. Instead, you should always keep the credit balance over 30 percent below the total credit limit provided.

4 - Get yourself added as an authorised user

An authorised credit card user is an individual who gets permission to use another person’s credit card without having the legal responsibility of paying it back. Family members like children or spouses can apply to become authorised user for personal cards.

If you have filed for bankruptcy, you can ask a family member or a friend who has a strong credit score to add you to their authorised user list which will boost your credit score since you will be backed by someone who has a good score of their own.

5 - Opt for low interest/balance transfer cards

As and when your credit score starts improving, you can apply for a low-interest credit card that charges a minimal percentage for credit payments. Do not go overboard and only apply for a single card because that is all you need in the early stages of post-bankruptcy.

You can also apply for a balance transfer card with another credit provider as that will enable you to transfer all your old debts from the previous card to a new one, but with a lowered interest.

6 - Consider a credit builder loan

If you think you can repay the loan, considering a credit-builder loan can help you increase your credit score over time. It is a type of loan that is specially curated to improve low credit ratings and build a strong credit profile. The loans are offered at low-interest rates, and you can borrow anywhere between $500 to $1000 and pay them before time to enhance your score.

Bankruptcy occurs when you fall into a debt trap, taking more credit to get rid of some old credit. But that does not mean it's the end of everything. You can work on steadily building your credit score and offset the effects of bankruptcy even before it is entirely removed from your credit report.

But all that starts by checking your credit report routinely to look out for your current score and any hard inquiries that have been made recently.

With ClearScore, you can get access to free credit reports emailed directly to you.


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Written by Lloyd Smith

General Manager AU

Lloyd spreads the word about how awesome ClearScore is.