Can Bankruptcy Improve Your Chances of Getting Credit?

How Filing for Bankruptcy Can Make You a Better Credit Risk

If you’ve suffered significant financial setbacks during the pandemic, or as the result of uncovered medical expenses, you may be reluctant to seek bankruptcy protection out of concern that it will make you less attractive to potential creditors. That’s not necessarily the case—in fact, bankruptcy often is seen by creditors as a positive step, and it’s been shown to lead to an increase in your credit score within 6-12 months.

Taking Positive Steps to Address Your Financial Problems

In the face of significant financial problems, many people unsuccessfully try to work or borrow their way out of trouble. Unfortunately, in most instances, that only makes things worse, increasing debt load, as well as the number of late payments reported to credit agencies. Though it may seem counterintuitive at first, most creditors view a bankruptcy filing as a good decision in the long run:

• First, it shows that you’re not ignoring your financial challenges but are actually trying to improve your situation.
• Second, whether you permanently discharge debts in Chapter 7 or reorganize under Chapter 13, you should end up with more discretionary income, which can make you a better credit risk.

Your Credit Scores Can Go Up Soon After Filing Bankruptcy

A bankruptcy filing will have a negative effect on your credit score, but that downturn can be short-lived. Chances are that your score was already too low to allow you access to credit. However, a study by the Federal Reserve Bank of Philadelphia found that people who sought protection under Chapter 7 or Chapter 13 saw their average credit scores increase within six months.

• Chapter 7 petitioners saw an average rise from 540 to 620.
• Chapter 13 filers saw their average score go from 535 to 610.

Contact Attorney Howard N. Sobel

At the office of Howard N. Sobel, we work closely with people in New Jersey in personal bankruptcy filings. Contact our office online or call us at 856-424-6400 to set up a free initial consultation (on selected cases). We are currently available by phone, text message or videoconference only. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.