Bankruptcy is always stressful — whether you’ve applied for it voluntarily or believe a creditor might soon make you bankrupt. It’s natural to have pressing questions, like ‘What happens to a credit report after bankruptcy discharge?’ or ‘Does a credit score go up after bankruptcy discharge?’. Before you make the significant decision to enter into bankruptcy, it’s essential that you have all the information. Consider the bankruptcy alternatives available to you, read more about the effects of bankruptcy on your credit score, and examine what your finances will look like after bankruptcy discharge.
In this guide, we’ll walk you through everything you need to know about bankruptcy, bankruptcy discharge, and the long-term impact of bankruptcy on your credit score — helping you make an informed decision about your financial future.
What Is Bankruptcy?
Bankruptcy is where you declare, through a legal process, that you cannot pay your debts. A trustee (often from AFSA) is appointed to manage your bankruptcy and may arrange for your assets to be sold to cover your debts. Bankruptcy releases you from most debts, allowing you to start from scratch and rebuild your finances. You can volunteer to become bankrupt, or an unpaid creditor can make you bankrupt through a court-issued sequestration order.
What Are the Consequences?
There are many consequences of bankruptcy, so you should consider carefully if it’s your best option. The major consequences include:
1. Compulsory payments
If you earn over $71,826.30 (after tax), you may need to make compulsory payments to your trustee to pay off some of your creditors.
2. Bankruptcy does not release all debts
Court-imposed penalties and fines, child support and maintenance, and HECS-HELP (or other HELP loans) debts still need to be paid.
3. Your house may be sold
Secured debts are tied to property, which means the creditor has the right to take possession of your property if you don’t make the payments for them. E.g. your house is security for your mortgage, your car is security for your car loan, etc.
4. You may not be able to travel
You will need to get permission from your trustee to travel overseas. It is an offence to travel without your trustee’s written consent.
5. You will permanently appear on the National Personal Insolvency Index (NPII)
This is a public register that anyone can see, and it will also show your name, date of birth, residential address, occupation, and the current status of the proceeding.
6. Credit reporting agencies will keep a record of the bankruptcy
A bankruptcy will appear on your credit report for five years from the date you became bankrupt or for two years from the date your bankruptcy ends — whichever is later.
7. Bankruptcy can affect your ability to obtain future credit
Even after your bankruptcy is discharged, the fact that it may appear on your credit report may influence whether creditors choose to provide you with a loan.
Understanding Bankruptcy Discharge & Credit Reports
‘Bankruptcy discharge’ is the legal way of describing when your bankruptcy comes to an end. If you’ve voluntarily applied for bankruptcy, it normally ends three years and one day from when the AFSA accepts your bankruptcy application. If a creditor has made you bankrupt, it usually ends three years and one day after you file a statement of affairs that the AFSA accepts. Bankruptcy discharge is an automatic process — you don’t have to apply to have your bankruptcy discharged.
What Happens to a Credit Report After Bankruptcy Discharge?
Once your bankruptcy has been discharged, the status will be updated on your credit report to show that you are no longer bankrupt. Unfortunately, bankruptcy discharge doesn’t mean the bankruptcy entry will disappear from your credit report. Bankruptcy will appear on your credit report for five years from the date you became bankrupt or two years from the date your bankruptcy ends, whichever is later.
Does Your Credit Score Go Up After Bankruptcy Discharge?
While some people find that their credit scores immediately improve after their bankruptcy is discharged, this is not guaranteed. Most people find that their credit score remains the same after bankruptcy discharge and doesn’t improve until they purposefully begin to rebuild it. If you continuously meet your financial obligations (e.g. paying bills on time), your credit will slowly begin to improve naturally. To kickstart this process with expert credit repair advice, contact the CRS Solicitors team.
What Are the After-Effects of Bankruptcy? Can I Apply for Credit?
Once your bankruptcy has been discharged, there aren’t any restrictions on applying for new loans or credit. In fact, very small loans can help you repair your credit score — if you are able to consistently make the loan repayments.
However, your name and information will remain on the NPII permanently, and many creditors check this register before providing a loan. This means that even after your bankruptcy has disappeared from your credit report, you may still struggle to get new loans.
Timeline for Credit Recovery
Your credit repair time will vary depending on your starting credit score health.
- 0–1 Month: Immediately after bankruptcy discharge, you may see a slight improvement in your credit score.
- 1–12 Months: Your score will gradually increase as you consistently pay your bills on time.
- 2–5 Years: Your credit will improve as your previous defaults begin to fall off your credit report and as you pay your loans and credit off on time.
- 5+ Years: Once your bankruptcy falls off your credit report (usually after five years), you will notice an uplift in your credit score.
- This timeline can be improved with the help of a credit repair specialist, who can help you remove unfair defaults and judgements from your credit report.
Practical Steps for Credit Rebuilding
Once your bankruptcy has been discharged, you can take a few practical steps to build up your credit score.
- Firstly, you need to acquire a copy of your credit report.
- Thoroughly check your credit report for default errors.
- CRS may be able to remove a paid or unpaid default from your credit report where the creditor has failed to comply with the legislative requirements or mistakenly reported a default against you.
- If the default is unpaid, we may be able to negotiate with the creditor to reduce the debt (at no extra charge) and remove the default.
- Thoroughly check your credit report for unfair enquiries.
- It’s common to find enquiries on credit reports that credit providers have made without your express consent or knowledge.
- Speak to CRS about having late payments, judgements, unfair defaults, and enquiries removed from your credit report.
- Start building a new credit history with low-limit loans and credit you can comfortably repay.
- Manage your existing obligations, particularly mortgages, car loans, and utility bills to show a pattern of responsible behaviour.
Contact CRS Today
The financial experts at Credit Repair Solicitors are well-versed in bankruptcy processes and can help you get your credit back on track if you’ve had to file for bankruptcy. Contact us today for an obligation-free consultation.