People who are discharged bankrupts are usually required to apply for an adverse credit mortgage when searching for a mortgage to fund the purchase of their property.

Bankruptcy was once the domain of unsuccessful self-employed business people and sole traders. However, in recent years there has been a significant increase in the number of employed individuals who have applied for bankruptcy. This is normally caused by unmanageable personal debt.

During times of high employment levels and low interest rates the cost of borrowing is normally low. Individuals often borrow excessive sums of money during these times through credit cards, personal loans, mortgages etc and when interest rates subsequently increase they are unable to keep up with the payments on their loans.

In addition to the number of individuals who are now applying for bankruptcy there is an increase in the number of people opting for a Personal Individual Voluntary Agreement (IVA) as a way out of spiralling debt problems.

Both of these situations can make it more difficult to find a mortgage once the bankruptcy and IVA commitments are completed.

However, it is not impossible, and making regular payments towards an adverse credit mortgage can help to repair an adverse credit history. While it is possible to achieve this, it should be noted that fully repairing an individual’s credit file after a period of bankruptcy will take many years. It is certainly no easy solution to solving debt problems.

Historically, bankrupts were required to spend three years in bankruptcy before being discharged and being in a position to apply for credit again. These days the time required to remain in bankruptcy has been reduced to one year.

After being discharged, former bankrupts will be eligible to apply for an adverse credit mortgage. Because of the individual’s history of mismanaging debt, interest rates and other fees and charges attached to the adverse credit mortgage will be high.

The adverse credit mortgage market is highly specialised and there are many different lenders specialising in various niche markets. It is therefore advisable to contact and independent mortgage adviser who specialises in adverse credit mortgage products when discharged as a bankrupt if searching for a mortgage to finance the purchase of a property.