There’s no easy way to say this, but bankruptcies and County Court Judgements (CCJs) can devastate your credit score - they stay there for 6 years and are a massive red flag to lenders. But fear not, daunting as they seem, they aren’t the end of the world. In fact, they can be the perfect opportunity to get your debts in order.
County Court Judgement vs Bankruptcy - What's the Difference?
The main difference between a CCJ and bankruptcy is that a CCJ is put in place by a creditor or someone you owe money to, while bankruptcy is usually something you self-declare. A CCJ is less dramatic because it relates to one debt, unlike bankruptcy, which is usually the result of many.
County Court Judgments and bankruptcies affect your credit rating in the same way, that is, badly. They show on your credit report for six years, so lenders see you as a high-risk customer and will be reluctant to give you finance. Even if you do find a willing lender, you can expect steep interest rates.
What is a CCJ? - The Essential Details
If you owe money to someone, such as a bank, and they can’t get it back, they ask the court to issue a CCJ. A local court will issue a CCJ as an official order to pay the debt.
A creditor will apply for a CCJ after many unsuccessful attempts to resolve the debt. If the court decides you owe it, it will send you a CCJ in the post. None of us want to wake up to a CCJ on our doorstep, but it is usually a result of many failed attempts to contact us.
We’ve all been there - ignoring final notice letters and hiding them in a drawer, but eventually, they will catch up in the form of a CCJ. That said, not everyone purposely avoids bills - some people miss final demands due to a change of address, for example.
You can find out if you have a CCJ by searching the Register of Judgements, Orders and Fines or by checking your credit report.
How Do You Pay a CCJ?
You have two ways to pay a CCJ. You can either pay it off immediately in a lump sum or arrange to pay in affordable monthly instalments. The fantastic news is that if you pay it in 30 days, then it won’t affect your credit score.
If you pay in instalments, I highly recommend setting up a Direct Debit because if you miss payments, the court can take further action against you. This includes a deduction of earnings, freezing financial accounts, and sending the bailiffs to your house.
If your circumstances change and you struggle to make payments, you can apply to amend the monthly payment through an N245 application form.
How CCJs Affect Your Credit Score
I’m sorry to be the bearer of bad news, but a CCJ is devastating for your credit rating. It will stay on your file for six years and is a massive red flag to creditors. You will struggle to get credit, especially mortgages, and it can even stop you from getting certain jobs or being able to rent a property.
But fear not, you aren’t the only person wrestling with debt. In the first quarter of 2023 alone, courts issued 371,000 CCJs for unpaid bills. Also, if you pay the CCJ in full within 30 days, you can stop it from going on your credit record and becoming a problem. Furthermore, the CCJ will automatically disappear from your record after six years.
If you pay the CCJ in instalments, you can apply to have it marked as satisfied on your credit record when you pay it off. This shows potential lenders that you’ve paid the debt. You’ll still have a low credit rating, but I'm sure you'll agree - a satisfied CCJ looks much better on your credit report than an unsatisfied one.
Can You Challenge a CCJ?
If you can provide overwhelming evidence that you don't owe the debt or didn’t receive the default notice, you can apply to have the case “set aside”. I must add that saying you changed address and didn't get mail forwarded isn’t a satisfactory excuse. If the letter was delivered to your registered address, the courts see it as your responsibility to redirect your mail.
What is Bankruptcy? - The Hard Facts
Bankruptcy is when you are in severe debt and simply can’t afford to pay your creditors. It has the same effect on your credit score as a CCJ, but I can tell you that it is much more life-changing.
That said, as daunting as bankruptcy seems, it can also be a chance to get back on track. It marks the end of dealing with the anxiety of debt collectors knocking at your door and negotiating with multiple creditors.
You can apply to become bankrupt if you have debt over 5000 pounds. In some cases, if you owe a creditor more than 5000, they can demand that you declare yourself bankrupt. Becoming bankrupt can be stressful and invasive and is usually a last resort.
If you want to become bankrupt, you must apply with the Insolvency Service and pay a £680 fee.
This Is What Happens When You Go Bankrupt
Like I mentioned, going bankrupt can be stressful. You will go on the insolvency register for 12 months from when you declare. Your bank account and assets are frozen, and an "Official Reviewer" takes control of your finances.
The Official Reviewer is in complete control of your finances and will organise selling your assets and sharing the profit among your creditors. You will only keep essential items - everything else, such as jewellery, is sold off. You can keep your car if you need it for work, but if it’s high value, you might have to get a cheaper one.
Money wise, you only have your day-to-day living costs - the rest of your income goes to creditors until you pay the debts off. Your savings and any one-off payments, such as inheritance or property sales, may also be affected.
The Insolvency Service also tells the local council, utility and phone companies and creditors that you are bankrupt. You may lose your bank account, you’re not allowed to direct a company, and in rare cases, the authorities can take your passport.
I’m sure you’ll be glad to hear that the restrictions only last 12 months. If you comply with all the requirements, you will be discharged from the insolvency register after a year. The bad news? The bankruptcy will stay on your credit record for six years.
This Is How Bankruptcy Damages Your Credit Score
Just like a CCJ, bankruptcy stays on your credit report for six years or longer if you don't get discharged, and you will struggle to get credit during this time. If you manage to get credit, it will likely be subject to high interest rates, and you must always declare your status when you apply for loans over 500 pounds. To be honest, it’s better if you don’t apply for credit if you are bankrupt. A refusal will only make your credit rating worse.
It is harder to open a bank account if you are bankrupt, and usually, you can only get a basic one. It can also stop you from getting a work or a rent contract. Even when it's off your credit record, lenders can still ask if you’ve been bankrupt, and it could affect your getting a mortgage.
Asking the Impossible - Can I get Credit With a Bankruptcy or CCJ?
It’s hard to get credit with Bankruptcy or a CJJ. They both severely affect your credit score, and creditors will be reluctant to loan you money. If you do manage to get credit, there’s a chance it will come with high interest rates.
Let’s take a look at your credit options if you have a CCJ or Bankruptcy:
Getting Credit With a CCJ
Getting credit with a CCJ aint easy and depends on many things such as the value of the CCJ, the quantity, and whether or not it's marked as satisfied on your credit report. A satisfied CCJ will increase your chances of getting credit.
I’ll be straight with you - I strongly suggest you ask yourself if you can afford it before taking out a loan - and only borrow to your budget. If you can afford a loan, it might even help you rebuild your credit score, so long as you pay it back in full and on time.
Look for lenders who specialise in bad credit ratings for the best chances of getting a loan with a CCJ.
Getting Credit With Bankruptcy
Bankruptcy is one of the worst things you can have on your credit rating. Unlike a CCJ, it shows you have many unresolved debts, and creditors see you as a high-risk customer. If you’re applying for a loan over 500 pounds while you’re on the insolvency register, you must declare your status.
It’s not a good idea to apply for credit, especially in the early stages of bankruptcy. Remember, for the first 12 months at least, your spare income will go to your creditors, and you won't have extra money for a loan.
How to Rebuild Credit With a Bankruptcy or CCJ
There’s no denying how badly bankruptcies and CJJs affect your credit score. Okay, you’re looking at a six-year stain on your credit rating, but you can use the time to improve your score and financial situation.
It’s a long, gruelling road rebuilding your credit score after CCJs and bankruptcies, but the outcome is well worth it. Imagine when you have a shining credit rating and can finally afford to do those DIY projects, get a new car, or enjoy a family holiday.
To help you get back on financial track, here are some tips for rebuilding your credit score after a bankruptcy or CCJ:
- Comply - You must comply with agreements between you and your creditors. If you don't comply, you won't be released from bankruptcy, and a CCJ will show as unsatisfied on your credit report.
- Don't apply for credit in the early stages - I strongly advise you to let the dust settle on a CCJ or bankruptcy before applying for credit. Wait at least 12 months with bankruptcy until you’re off the insolvency register. With a CCJ, ideally, you should wait until 12 months after it’s marked as satisfied on your credit report.
- Only borrow what you can afford - Borrowing right after being discharged from bankruptcy isn’t recommended. But after 12 months, taking small, affordable loans can help improve your score if you pay them off fully and on time.
- Keep an eye on your credit report - In a normal situation, you should check your credit report annually to ensure your basic details are up to date. But, if you have a CCJ or bankruptcy, you should check it every six months and make sure any changes with your case, such as a satisfied CCJ, appear.
How Bankruptcies and CCJ Affect Your Credit Score - Let’s Sum It Up
So, hopefully, now you have a better idea about how bankruptcies and CCJs affect your credit score. In summary, they both severely hinder your chance of getting credit and stay on your record for six years.
Having a CCJ drop through your letterbox or facing bankruptcy could feel like a devastating blow, but it’s also an undeniable wake-up call, telling you to take your life and finances in hand. If you learn from your mistakes and comply with the orders, you can rebuild your credit score and enjoy financial freedom in the future.
Resources
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