Impact of Bankruptcy on my Credit History

When a person declares personal bankruptcy, this bankruptcy is reflected on their credit report. Generally speaking, Australian credit reports currently only reflect negative information about your credit. Your financial transgressions or blemishes have a life cycle, after which they disappear from your credit report.

In Australia, items like bankruptcies will stay on a credit report for seven years. Other black marks, such as defaulted accounts, continued late payments, judgments and repeated credit enquiries will remain on a credit report for five years. While your financial mishaps remain on your credit report, qualifying for any loans but especially unsecured credit will be very difficult if not impossible.

Persons declared bankrupt are also listed for life on the National Personal Insolvency Index – a government register of all persons that have become bankrupt, or have entered a Part 9 or Part 10 Agreement under the Bankruptcy Act.


The effect of Liquidation on personal credit rating

If you are a business owner or a director of a company and your company enters liquidation, this does not have the same effect on your credit history as a personal bankruptcy. A company is a separate legal entity from its owners and directors and consequently the failure of a company does not have anywhere near the same effect on personal credit ratings or the ability for an individual to obtain finance.

A director of a company in liquidation will not necessarily have a record on their credit report to reflect that they were associated with a company that has been placed into liquidation.It is however, possible for banks, financial institutions or other parties to undertake a directorship search with ASIC to determine what companies a person has been a director of. Such a search is historical and will show all directorships over the years.

The search will also reveal whether or not a company has entered into insolvency and liquidation as the company file would be marked “EXAD” – or under External Administration if the company had entered into some type of formal insolvency appointment. In short f the bankruptcy is not personal it does not have the same long term effect on your credit history nor the stigma attached with personal financial failure.


Borrowing money while a company is being liquidated

A person seeking to borrow money while their company is being liquidated can generally expect one of two outcomes. Firstly, the lender will not lend to the director while the liquidation is yet to be fully completed as they understand that certain claims may be made against a director through the course of winding up such as claims for unpaid director loan accounts or claims for director related transactions as defined under the Corporations Act.

Alternatively and this is more frequently the case, the lender will require a letter of comfort from the liquidators that will say investigations have been conducted and while the liquidation has not yet been completed, that there does not appear to be any claims against the directors for any unpaid loan accounts or other claims that may arise under the Corporations Act.

Where the requested letter s provided, it is our experience that the lender may then consider making a loan on the basis of the ability to repay and security offered in support of the loan.


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