Personal Loans for People in Bankruptcy

Getting personal loans after bankruptcy discharge - also known as sequestration in Scotland - can be a problem because your credit file will be adversely affected by the bankruptcy process. 

Obtaining a loan after sequestration or bankruptcy is possible, but it might take a little longer to find a provider willing to lend to you in your circumstances. Some lenders specialise in this type of loan, whilst others operate a separate department within their larger organisation.

Getting a loan after sequestration

If you have gone through the sequestration process, you may be wondering if you will ever be eligible for a personal loan in the future. During the 12 months of your formal bankruptcy, you will be unable to borrow or obtain credit of more than £500.

Some discharged bankrupts go on to successfully apply for borrowing after the initial 12 months, despite the significant negative effect that bankruptcy or sequestration has on their credit rating.

All three credit reference agencies in the UK – Equifax, Experian and TransUnion – keep a note on file of bankruptcies, or any other formal debt solution, for six years. During the period of bankruptcy you will be unable to apply for borrowing, but once discharged it is a good idea to start rebuilding your credit file.

What are personal loans after bankruptcy or sequestration?

Some debtors coming out of the bankruptcy process choose to apply for a credit card in order to rebuild their credit rating.

Others prefer a small personal loan after their bankruptcy discharge, as certain features of a personal loan may it more attractive. You will know exactly how much you have to pay each month, and over what timescale.

It is these fixed terms and amounts that generally attract people to personal loans after bankruptcy, rather than the flexible payments to a credit card which could be misused, landing you in uncontrolled debt again.

What can you expect from a personal loan after bankruptcy?

• Higher interest rates are the main feature of these loans particularly after sequestration. The lender will need to cover the perceived risk of lending to you as a discharged bankrupt, so expect to pay a high rate of interest compared with standard personal loans.
• The amount you can borrow will be restricted. Again, this is to reduce the risk to the lender who will want to keep the chances of default to a minimum. In a way this benefits you too, as it minimises the risk of you getting into a debt spiral again.
• Some lenders charge a set-up fee, which in this case may be higher than for a standard personal loan.
• If you miss a single payment or are late in paying, your lender may call in the loan which will require you to repay the outstanding balance immediately.
• Proof of a regular income will be required by all lenders, and in the case of a discharged bankrupt, you may need to have been in permanent employment for a year before they will consider your application.

What should I consider for a personal loan after sequestration?

• It would be worth checking that the information held by the main credit reference agencies is accurate and up-to-date, as mistakes can be made. If there is an error on your report, you can apply to have a note place against it explaining the problem, or have it removed.
• Being registered on the Electoral Roll will improve your chances of getting a personal loan once discharged from sequestration, as it is one of the checks that lenders carry out to identify borrowers.
• A good financial advisor will be able to guide you through the process, help you find a suitable lender, and generally steer you towards the best product available. It is important not to apply for and be refused several loans in a small period of time as your credit rating will be further affected by this.
• Lenders that offer personal loans after bankruptcy discharge are called sub-prime lenders. They will require proof of a regular income, and will need to know your monthly outgoings in detail to assess your eligibility for a loan. Supplying bank statements and wage slips is the standard way to provide this information.

Most lending institutions operate a specific policy for personal loans after sequestration. They may require you to have been discharged from bankruptcy for a minimum time period, two or three years, for example. Some lenders specify that you need to have successfully handled two other lines of credit since your bankruptcy.

How Scotland Debt Solutions can help

If you are struggling with your debts and want to better understand your options, the team at Scotland Debt Solutions are here to help. Our team of personal debt specialists can talk you through the sequestration (or bankruptcy) process and assess whether it is appropriate for you.

If not, we can discuss the alternatives including Trust Deeds and the Debt Arrangement Scheme (DAS).