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Filing Bankruptcy May Help Your Credit Score

Creditors (e.g. credit card companies) use your credit score to adjudge whether to issue you any credit or to affix the rate of credit that they might be willing to give you.

A new analysis sheds some hopeful light on filing bankruptcy and its effect on your credit score.  The analysis

Paul Goldsmith-Pinkhams, an economist with the Federal Reserve Bank of New York, reviewed successful and unsuccessful bankruptcy filers and the effect bankruptcy had on their credit score and worthiness after bankruptcy.

Most filers see their credit score drop substantially prior to filing bankruptcy (no surprise!). However, the good news is that generally filers saw their credit scores partially recovery immediately after a successful bankruptcy.


The reason, as Paul Goldsmith-Pinkhams explains:

For successful Chapter 7 and Chapter 13 filers, the recovery likely stems from the successful discharge of debt—many delinquent debts are removed from the report upon filing, which leaves the debtor better positioned to repay remaining or new debts—as well as the fact that filing for bankruptcy puts limits on a person’s ability to file again in the near future. . . . Over time, debtors continue to rebuild their credit back to initial levels, and at flag removal (seven years for successful Chapter 13 and ten years otherwise), there is a bump in credit scores. This bump is largest for the successful filers—jumping from around 610 to 620—and smallest for the unsuccessful Chapter 13 filers.

If you have questions about your credit report, including the veracity thereof, or are just contemplating filing bankruptcy, please give us a call at (765) 640-1330 or email Alex Beeman at


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