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The Reaquisition of Credit Following Chapter 7 Personal Bankruptcy

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  • David K. Musto

Abstract

Federal law allows credit bureaus to report past bankruptcies up to ten years, so the financial implication of filing includes a ten-year influence on new credit. I document this influence with a large panel database of credit files which tracks many Chapter 7 filers past the moment when the filing disappears from potential creditors' view, providing a tightly controlled test of the filing's impact on credit access. The principal finding is that the bankruptcy flag has a big effect on the access of the more creditworthy past filers; when they lose their bankruptcy flags, their credit scores jump substantially and they open new credit relationships, high-limit bank cards in particular, quickly. Subsequently, the score-increases mostly reverse and delinquency is abnormally high.

Suggested Citation

  • David K. Musto, 1999. "The Reaquisition of Credit Following Chapter 7 Personal Bankruptcy," Center for Financial Institutions Working Papers 99-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:99-22
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    File URL: http://fic.wharton.upenn.edu/fic/papers/99/9922.pdf
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    References listed on IDEAS

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    Cited by:

    1. Bernardo Morais, 2011. "Should I Stay or Should I Go: Investor Protection, Firm Selection and Aggregate Productivity," 2011 Meeting Papers 878, Society for Economic Dynamics.
    2. Joanna Stavins, 2000. "Credit card borrowing, delinquency, and personal bankruptcy," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 15-30.

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