If you have been made bankrupt you may think there is no chance you will ever be able to secure a mortgage again. It is true that while you are legally bankrupt you will not be able to successfully apply for finance, but once you have been discharged the situation can change.
When a person or other legal entity is declared insolvent by a court they become bankrupt. This means that they owe more money than they own and it is estimated that they do not have enough income to pay their creditors in the future. A person can be made bankrupt with a debt as low as £750 as long as the creditor applies to the court with a bankruptcy petition. If the court issues a bankruptcy order the assets of the individual will be repossessed in order to pay off their creditor.
The bankruptcy period used to last for three years however this has now been reduced to twelve month. A person will therefore become a discharged bankrupt one year after the bankruptcy order was first enforced. During this time it is virtually impossible for the bankrupt to obtain credit and this includes mortgages.
Once an individual is discharged a record of their previous bankruptcy will remain on their credit file for six years. Bankruptcy is probably the most serious form of adverse credit to exist on a person’s credit file as it provides evidence that they were completely unable to pay their debts at one stage of their life. Such an entry on a credit record previously resulted in several more years of persecution from lenders meaning that the discharged bankrupt was practically banned from obtaining a mortgage for many years to come.
Whilst it is true that most lenders will not greet discharged bankrupts with open arms, there are a number of financial institutions in existence these days who provide adverse credit mortgage products for people in this situation. An adverse credit mortgage may be a Godsend to a discharged bankrupt and provide them with a lifeline into home ownership.
Because bankruptcy is widely regarded as one of the most serious forms of bad credit, any individual who has become a discharged bankrupt will usually be deemed heavy adverse by lenders. Specialist lenders now provide mortgages for heavy adverse clients in addition to the products designed for light and medium adverse applicants. It should be noted that there are fewer adverse credit mortgage products for those suffering from heavy adverse credit than all other classifications.
It is also important to note that adverse credit mortgage products which are designed for discharged bankrupts come with stringent terms and conditions. These include long tie-in periods and high early repayment charges if the mortgage is redeemed within the tie-in period. They also typically have hefty application fees which are sometimes payable to the lenders and usually payable to the mortgage brokers who arrange the loans.
However, if used correctly, an adverse credit mortgage can help a discharged bankrupt rebuild their life and their finances provided the home owner keeps up with their monthly repayments.
