The Federal Reserve Bank of New York Research and Statistics Group recently released a report on the effects of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), a 2005 law that significantly restricted the ability for debtors to file for bankruptcy and has resulted in a decrease in total bankruptcy filings since its passage. According to the Huffington Post’s analysis of the Federal Reserve report, the decrease in bankruptcy filings since 2005 offers an effective means to compare the effects on future creditworthiness of a debtor who files filing for bankruptcy versus a debtor in a similar position who elects to remain insolvent and try and fix their credit without the help of bankruptcy.
The Huffington Post article first focused on the ability of a debtor to obtain new lines of credit four quarters after going insolvent. The debtors who filed for bankruptcy had actually received more credit offers and extended more lines of credit than the debtors who remained insolvent. This fact appears to disprove the commonly held notion that personal bankruptcy filing is a death sentence for a consumer’s credit, and that bankruptcy should be avoided at all costs. Instead of restricting access to credit, as many people argue, a bankruptcy can actually give a consumer access to more credit and enable them to reclaim their financial stability sooner.
Bankruptcy Generally Results in Higher Credit Scores Faster than Self Help
The article also analyzed the credit scores of people who filed for bankruptcy compared to those of debtors who did not file for bankruptcy. Over the last 15 years, people who filed for bankruptcy generally have higher credit scores in the months and years following their insolvency than those who did not file. Since the passage of the BAPCPA and the 2007-2009 recession, the gap between the credit scores of bankruptcy filers and those who choose not to file has grown even more. According to the most recently available information, debtors who file for bankruptcy have a credit score one year after filing that is nearly 10% higher than the score 18 months after a debtor chooses to avoid bankruptcy. Bankruptcy presents not only an effective way to solve a consumer’s debt problems, but it is also one of the fastest ways for someone to get their finances back on track.
Are You in Over Your Head?
If you or someone you love is struggling with debt and has considered bankruptcy, it is important to understand the facts surrounding credit and debt relief before deciding on a plan to solve your debt troubles. Many alternative debt relief or “credit counseling” agencies have a vested interest in debtors not filing for bankruptcy and pursuing one of their plans for debt relief instead. Don’t believe what you hear about bankruptcy before consulting with a bankruptcy attorney. The United States Bankruptcy Code and the Rules of Professional Conduct are designed to protect consumers, clients, and debtors from misleading offers and legally unsustainable credit solutions. Filing for bankruptcy is often the best solution for a debtor trying to get back on their feet, and the Louisville and Southern Indiana bankruptcy attorneys at the Schwartz Bankruptcy Law Center are here to help. We advise clients on many debt-relief options, including bankruptcy as well as alternatives to bankruptcy. Our knowledgeable attorneys know the best ways to help our clients get themselves out of debt. Call 866-366-3328 now to schedule a free consultation or contact us through our website.
More Blog Posts:
Bankruptcy Judge Allows Debtor To Recover Attorney’s Fees After Creditor Violated Automatic Stay, Kentucky Bankruptcy Lawyers Blog, published October 6, 2014.
Bankruptcy Court Allows Malpractice Plaintiff to Sue Surgeon in Bankruptcy, Kentucky Bankruptcy Lawyers Blog, published November 2, 2014.