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Credit Availability After Bankruptcy (Part 1)

Published September 10, 2011 by Sasser Law Firm

We stare at a lot of pre-bankruptcy credit reports. We love ‘em: they tell us who our clients owe, who they used to owe, what their old addresses were, and what their maiden name used to be. We love credit reports so much that we pull two different kinds of credit reports for each client. What we don’t see a lot of is post-bankruptcy credit reports. Once a client finishes a bankruptcy case our interactions are usually limited to waving at each other in the grocery aisle. (And if they don’t waive back, it’s alright, we understand.) That can make the post-bankruptcy credit market a bit of a mystery for folks. Recently, a law professor named Katherine Porter provided some helpful statistics and analysis in an article called “Life After Debt: Understanding The Restraint Of Bankruptcy Debtors.” The article focuses more on consumer behavior rather than credit availability, but there is a relationship there that can’t be denied. I read it so you wouldn’t have to. Here are the highlights.

  1. “Nearly all bankrupts are repeatedly solicited for new unsecured credit immediately after their bankruptcies, typically at a rate of ten solicitations each month.”
  2. After one year “only about one-quarter of debtors reported that they had accepted any new credit since the bankruptcy filing.”
  3. After three years “forty-three percent of families said that they had purchased a car during the three years after bankruptcy. Among the car buyers, 65 percent took out a loan.”
  4. “The average and median interest rates for post-bankruptcy car loans were 13 percent.”
  5. After three years, “six in ten families reported that they had accepted at least one new credit card after bankruptcy.”
  6. “There is a sharp uptick in lending after about the fourteenth or fifteenth month after bankruptcy.”
  7. “Installment secured credit is more restricted than revolving credit in the immediate post-bankruptcy period…Lending on mortgages, car loans, and other installment credit does not seem to recover within the same eighteen-month framework observed for credit cards and other traditional revolving credit.”
  8. “For those with credit scores below 300 when they filed bankruptcy, the average bankruptcy penalty is positive,” meaning that their credit improved upon filing.

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