One of the questions I get most often is how filing bankruptcy will impact someone’s credit score. I generally think making decisions based on how your credit score will be affected is a bad idea. But I understand concerns about the issue.
Two studies from the Federal Reserve Bank of New York tries to shed some light on the question. A 2015 study found that while people who file bankruptcy generally start with lower credit scores than people who don’t, after the bankruptcy was filed credit scores bounced back much faster and higher. The study said people “who go bankrupt experience a sharp boost in their credit score after bankruptcy” while the “recovery in credit score is much lower” for people who don’t file.https://thompsonlawoffice.net/493/credit-scores-and-bankruptcy/
The study concluded that people “who do not go bankrupt exhibit more financial stress than those who do” and suggested people would likely prefer to file bankruptcy.
A 2017 Federal Reserve Bank of New York study first said that almost 15% of the U.S. population has filed bankruptcy in the last 25 years. Research on these filers found that while credit scores for all filers of Chapter 7 and Chapter 13 bankruptcy dropped by 100 points in the four years before filing bankruptcy, the bankruptcy filing resulted in a recovery afterwards.
As I tell my clients, my personal philosophy is that society places too much emphasis on credit scores but if you’re concerned about how filing bankruptcy will impact your financial situation, these studies provide some clues.
If you want to discuss how bankruptcy will put you on a path towards recovery contact me at [email protected].
