At BRI Business Recovery and Insolvency, we help a range of clients with their insolvency and restructuring processes. One of the questions we are often asked is “Does insolvency affect my credit rating?” When considering the answer to this question, it is best to look at Insolvency in two parts – corporate and personal. At BRI Business Recovery and Insolvency (“BRI”), we can advise on both.
If you find yourself in financial difficulty, contact our insolvency practitioners today.
Does the Insolvency of my Company Affect my Credit Rating?
Depending on the circumstances in which individuals have entered into contracts with suppliers or lenders that included personal guarantees, the insolvency of the company may affect your credit rating. Credit rating for directors of limited companies that require some form of insolvency are not usually affected. Any debts that exist at the time of the insolvency remain with the company. Following the insolvency event, the directors do not have an obligation to repay the debts.
However, there are certain circumstances in corporate insolvency where a director’s credit rating may be affected. If a director has personally guaranteed a company’s debt and the company suffers an insolvency event, then the director will have to repay the debt personally. If the director cannot do this, then their credit rating may be adversely affected. Alternatively, if the director is currently in the process of a mortgage application or obtaining a personal loan, and this application is reliant on the level of dividends previously drawn from the company or remuneration received, it will impact the affordability calculations.
Does Personal Insolvency Affect My Credit Rating?
In short, yes, your credit rating is affected. If an individual becomes insolvent through bankruptcy, a debt relief order or an individual voluntary arrangement, it is recorded on their credit file. These forms of insolvency will cause a credit score to decrease significantly, making it more difficult to obtain credit in the future.
Credit reference agencies will retain insolvency records for six years from the date of the insolvency, even if the insolvency period is shorter. Job opportunities may be limited as some employers, especially in the financial or legal sectors, may consider credit records during their background checks.
The impact of the insolvency is not permanent; once the six-year period ends, the insolvency entry is removed from the credit record, and the individual can then rebuild their credit score.
Summary
In essence, a person’s credit rating may be affected by insolvency, but it is not always the case and depends upon the circumstances. If you are considering insolvency, it is best to seek advice before deciding what to do.
If you are a director or individual and would benefit from advice on insolvency and how it might impact your credit rating, then please reach out to any of the BRI management team who will be able to offer a confidential, free and without obligation meeting to discuss.