Schreiber Law Office, LLC
Richard M. Schreiber, Attorney
MEMBERSHIPS
MINNESOTA BANKRUPTCY LAW FIRM
HOW WILL BANKRUPTCY AFFECT MY CREDIT
This is an understandable concern for most people, and it often depends on how good your credit is now. If you currently have good credit, filing for
bankruptcy will hurt your credit more than if your credit score already has negative marks on it. It can be a difficult decision to weigh the benefits of a
bankruptcy versus the impact it has on a credit score. The general rule is the farther in the past your bankruptcy was filed, the more your credit score will
improve.
In a study conducted by the Federal Reserve Bank of New York, it was determined that after 2 years, people with debt who filed for bankruptcy had better
credit scores than those who did not. Specifically:
“individuals who will eventually go bankrupt initially have lower credit scores….[h]owever, they experience a sharp boost in their credit score after
bankruptcy, whereas credit scores recover at a much slower pace for individuals who remain insolvent. One quarter after bankruptcy, the credit score of
bankrupt individuals exceeds the credit score of insolvent individuals 1 quarters after insolvency by 40-80 points…. [And] the debt discharge associated
with bankruptcy leaves filers in a better financial position than individuals who become insolvent in similar circumstances.”
Insolvency After the 2005 Bankruptcy Reform, Federal Reserve Bank of New York Staff Reports, page 5
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr725.pdf
In summary, filing for bankruptcy does not make it impossible to obtain future credit, and as time passes it gets easier. Even when there is a recent
bankruptcy, future credit can be an option. Simply look at all the advertisements for car loans that say “Bad Credit, No Problem” and “Bankruptcy, No
Problem.”
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