If you are facing bankruptcy, having a CCJ or default showing on the credit report it will impact the credit score considerably. We look at these issues in this blog and how they can be handled.
Bankruptcy
A person is considered legally bankrupt when they are no longer able to repay their debts. When a person declares bankruptcy, they are declaring legally that they are no longer able to clear their debts. Upon bankruptcy, any unsecured debts are written off. This is generally the last option because assets like a car or house could be sold to clear debts. There are two ways of going bankrupt. Either when a creditor you owe £5,000 or more cannot come to an agreement to repay or it is done voluntarily by the borrower.
A bankruptcy shows up on the credit report for 6 years with lenders paying less attention to it over time.
In case of bankruptcy, there are restrictions for 1 year that have to be followed. There may be a need to make monthly payments from any other income source known as IPA (Income Payments Agreement) for 3 years. After the bankruptcy is discharged an individual needs to rebuild their credit history over time.
CCJ
The full form of CCJ is County Court Judgment and is a legal order to a borrower to repay any outstanding debt. These are issued if an account is declared as a default by a lender that can then get a CCJ to ensure their debt is repaid.
CCJs remain on a public database i.e., Register of Judgments, Orders and Fines and a credit report for 6 years. If the full amount is cleared in 30 days, the CCJ can be removed from the credit report and changed to ‘Satisfied’ on the public register. Having the CCJ marked as ‘Satisfied’ increases the likelihood of lenders being okay to lend credit. Over time lenders pay less attention to CCJs.
If a lender takes legal action and a county court form is received take immediate action as the response must be within 14 working days.
Default
Missing debt repayments for a certain number of times (it differs between lenders) will lead to a default. When an account is declared as default it shows the lender is sure the debt is not going to be cleared. They can then take legal action for repayment of the debt. As mentioned, the number of payments permitted to miss vary with some lenders allowing only 2-3 while others permitting as much as 6 payments. Once an account is under default status it appears on the credit report and impacts the credit score extensively.
The default status remains on the report for 6 years even in case of repayment of debt. While it affects creditworthiness over the years lenders may focus on it less.
Before an account is declared default, a notice is issued to the borrower with the sum owed. If paid within 14 days things will continue as usual If not it will be declared default. In case of default, there are organisations in the UK like National Debtline or StepChange for free advice and a possible repayment plan.