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Personal bankruptcy may help New Jersey residents' credit scores

At one point or another in their lives, many people find themselves in the midst of what feels like insurmountable financial troubles. Often through no fault of their own, individuals face mounting credit card debt or other types of personal or medical debt and simply don't know where to turn. New Jersey residents can take comfort in knowing that filing for personal bankruptcy can actually be beneficial for their credit scores.

There is such a stigma surrounding bankruptcy that many people feel it will permanently destroy their credit scores. However, a study conducted by researchers at the federal Reserve Bank of Philadelphia discovered the opposite to be true. While credit scores typically drop drastically in the 18 months before individuals filed for personal bankruptcy, after doing so, scores began to steadily rise. Using Equifax's 280 to 850 scoring range, on average, a credit score before filing Chapter 7 was around 540; following the discharge of the cases, the average score had risen to approximately 620.

In addition, individuals considering filing for personal bankruptcy should keep in in mind that there are many options for increasing one's credit score afterwards. There are secured credit cards wherein an individual makes a deposit with a bank, generally between $200 to $2,000, and then receives a credit line in that amount. A regular credit card can also be obtained once credit scores again reach the mid-600s. In addition, there are credit-builder loans, typically offered by credit unions; these loans put borrowed amounts of between $500 to $1,000 into a savings account or a certificate of deposit that the borrower can claim once he or she has made twelve monthly payments. All of these payments are recorded by the credit bureaus, so the individuals are rebuilding their credit history while also increasing their savings.

The most important thing for residents of New Jersey to remember when they're considering filing for personal bankruptcy is that doing so is not giving up and declaring failure. Rather, with the guidance of an attorney experienced in bankruptcy laws, doing so can offer brand new start and provide steps toward a more secure financial future. Individuals can use the knowledgeable legal guidance of their attorney to help them navigate the process.

Source: inforum.com, "Filing for bankruptcy may actually help credit scores", Liz Weston, Nov. 8, 2016

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