Philadelphia Fed Explores Access to Credit After Consumer Bankruptcy Filing

A new working paper from the Philadelphia Federal Reserve explored variations in chapter 7 and chapter 13 filings to see if there is a difference in post-bankruptcy access to credit for consumers. The working paper focused on unsecured debt, such as credit cards, and found that: Credit scores start to recover dramatically before the date on which debt is discharged for both filer types, which might be caused by the waiting period before debtors are allowed to file for bankruptcy again. This waiting period may mitigate the risk of default for lenders. Despite the recovery in their credit scores, bankruptcy filers have limited access to unsecured credit. Even though debtors may be able to obtain some unsecured credit after bankruptcy, their credit limits are substantially lower than they were before bankruptcy filing. Chapter 7 filers have a greater opportunity to acquire unsecured credit from new lenders than chapter 13 filers do. Despite reduced access to new credit, chapter 13 filers are better able to maintain old credit and, as a result, generally have higher overall credit limits than their chapter 7 counterparts.Click here to read the working paper.

Source: PHILADELPHIA FED EXPLORES ACCESS TO CREDIT AFTER CONSUMER BANKRUPTY FILING – Gudeman & Associates, P.C.