Recent Study Finds People in Financial Distress Have More Credit Opportunities and a Brighter Financial Future if They File for Bankruptcy Than if They Don’t.

If you think bankruptcy will ruin your credit score or that it will cause you to not be able to qualify for a loan - think again. The evidence is just the opposite. The Federal Reserve Bank of New York recently conducted a study comparing two groups of people. Both groups were insolvent - meaning the sum total of all their debts was greater than the total value of all their assets (assets = everything they own, from real estate to bank accounts, cars, furniture, etc.). One group filed for relief under the Bankruptcy Code and the other did not - instead they just did the best they could, struggling along trying to make payments or negotiate deals to repay whatever debt they could.

Here are the conclusions:

  1. People who filed for bankruptcy were offered and opened more new unsecured accounts than those who did not.
  2. Those who filed for bankruptcy saw a sharp boost in their credit scores whereas the credit score recovery was much lower for those who did not file bankruptcy.
  3. People who did not file for bankruptcy relief often wasted money they held in retirement accounts to try to catch up on debts. (People who file for relief in bankruptcy are almost always allowed to keep their retirement funds.) If those retirement funds had been kept and allowed to grow with normal interest and dividends, the amount lost by retirement age could be staggering. A cited example was $23,231.12 taken out of a retirement account at age 25 and used to pay debt would have been worth $1,247,526.55 if left alone until retirement at age 70.

In order to avoid blunders such as this, the best thing to do is talk to a knowledgeable bankruptcy attorney first to see what the best option is for you.

Summarized by Marcus H. Herbert. The information for this report was taken from an article titled "Scared to File for Bankruptcy? The Alternative Could be Worse" by Steve Rhode of, published March 2, 2015 on