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Can you take credit after Individual Voluntary Arrangement or Bankruptcy?

One of the questions I am often asked in relation to individual voluntary arrangements and bankruptcy is "Will I be able to get credit after the end of the arrangement?" The short answer to this is yes. However it is useful to fully understand the effect of undertaking such a solution so that you know exactly where you stand.
Firstly it is important to understand that if you have entered into an individual voluntary arrangement or bankruptcy, this be recorded on the insolvency register and on your credit file. This record will remain in place for 6 years from the day that the arrangement started. In itself, this registration does not automatically prevent you from taking credit. Ultimately, if you apply for credit, the bank you approach will use its own criteria to decide whether to lend you money or not. However, they will normally use your credit file as a source of information on which to base this decision. Generally, if they see you are in an IVA or are bankrupt, you will not meet their lending criteria and your application for credit will be declined.
It is also important to remember that if you are in an individual voluntary arrangement, you must not attempt to take credit without first getting the permission of your insolvency practitioner. It is unlikely that they will agree to allow you to have credit unless you are considering a re-mortgage to release money for the benefit of your creditors. If you are looking to re-mortgage while still in an IVA, you may have to provide the mortgage lender with a letter from your Insolvency Practitioner confirming what the loan is for and that you are able to comfortably afford the repayments.
Naturally, most people are interested to understand if they will be able to borrow again when their IVA is completed or they are discharged from bankruptcy? If you are in this position, you must remember that the record of the IVA or bankruptcy will remain on your credit file for 6 years whatever date the arrangement was completed. As such, even if you settle your IVA early or are discharged from bankruptcy after one year, any lender you approach will still be able to see that you have been through this process.
Once you have been discharged from bankruptcy or your IVA has been completed, legally you are allowed to borrow again. Of course, different lenders will have different attitudes to lending to people with past credit problems. In theory, you should be an extremely good prospect to lend to as you will have no other unsecured debt which you have to repay. In addition, you will have been living within a strict expenditure budget and therefore should have learned how to better manage your money to ensure any future borrowing repayments are made on time. Given this, you should be successful if you want to apply for example for a new credit card. However, you must recognise that the credit limit you will be given is initially likely to be minimal. As you show that you are able to sensibly use and repay this facility, the limit may be increased.
In terms of secured borrowing such as getting a mortgage, prior to the onset of the credit crunch in 2008, this was relatively easy. As above with no other unsecured borrowing to worry about, you would have been a good prospect for a mortgage lender. However, in today's lending environment it is not easy to secure credit under any circumstances. Generally you will need a lump sum deposit of up to 25% of the value of the property. As such, you will normally need to secure this from a family member or start saving!

Overall, if you are considering entering into an individual voluntary arrangement or declaring bankruptcy, you must be suffering significant financial difficulty. As such, your first priority should be sorting out this problem. The likelihood is that if you let things go on as they are you will not be able to borrow more anyway. Therefore, unless you grab the problem by the scuff of the neck and get a solution in place, you are never going to get yourself back into a position where you can think about borrowing again.
I would also highlight that after having completed any kind of debt management programme, you will be used to living within a budget. You will also have available to you all of the extra money that you were paying into your arrangement. As such, I suggest that you continue to use your new budgeting skills and start a savings plan, saving the money that you were previously paying into your arrangement. In this way, you can save up for the more costly items that you want and reduce the need for taking out further credit (see my previous article about saving http://www.beatmydebt.com/news-articles/news20090630-5.htm). Living credit free and paying for what you want with the cash you have saved is always a lot more satisfying than the buy now pay later trap that so many of us fall into.

About the Author

Steve Jackson, Author for BeatMyDebt. For more information related to,
Individual Voluntary Arrangement and Bankruptcy visit, http://www.beatmydebt.com

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Aug/26/2009 Comments Comments