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Bankruptcy debt relief can result in greater credit opportunities

The subject of bankruptcy conjures up several myths that are unsupported by fact but which persist both nationally and in Arkansas. These myths about bankruptcy are often created by groups that have vested interests in preventing bankruptcy debt relief. A federal reserve bank in another state has published a report that may finally stifle the false perceptions about bankruptcy relief created by some banks, creditors, credit counseling agencies and debt relief companies.

The report concerns the impact of the bankruptcy reform provisions passed by the U.S. Congress in 2005. Generally, all observers agree that the 2005 law has made it more difficult for insolvent persons to file for bankruptcy. In that respect, there is a growing class of insolvent persons who are unable to overcome their festering financial conditions.

The report issued by the Federal Reserve Bank of New York compares the plight of those who filed for bankruptcy with those who remained insolvent and overwhelmed. The report concluded that people who filed for bankruptcy had access to more new lines of credit than those who remained chronically insolvent. So much for the myth of no credit after bankruptcy.

Additionally, those who filed for bankruptcy clearly opened more unsecured credit accounts than those who remained insolvent. The report concludes that filing for bankruptcy can give a person access to more credit and, ironically, can result in a steadier flow of credit offers as soon as his or her discharge becomes official. One seasoned credit repair and debt relief expert noted that, within one year, a person who has a bankruptcy on his or her credit record can get competitive rates on car financing, and, within two to three years, he or she can qualify for good mortgage rates.

The Federal Reserve Bank reports another remarkable outcome of bankruptcy debt relief, which is that those who file typically see a sharp increase in credit scores after the final discharge. The report also concludes that the 2005 bankruptcy reform provisions sharply increased the insolvency population, nationally and in Arkansas, with no good purpose. Finally, the report pointed out that people who fester in insolvency lose substantial amounts of retirement benefits; whereas, those who file for bankruptcy have their qualified retirement benefits fully protected by law for their future benefit.

Source: foxbusiness.com, "How Avoiding Bankruptcy Can Backfire", Steve Rhode, Mar. 2, 2015

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