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The Reaquisition of Credit Following Chapter 7 Personal Bankruptcy

  • David K. Musto
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    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.

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    File URL: http://fic.wharton.upenn.edu/fic/papers/99/9922.pdf
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    Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 99-22.

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    Date of creation: Jun 1999
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    Handle: RePEc:wop:pennin:99-22
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