Experian National Score Index - U.S. Average Credit Score Rankings

The Mysteries of Bankruptcy
Bankruptcy: Fact vs. Fiction

The Price Americans Will Pay to Go for Broke
The nation prepares for the new bankruptcy law – who will be hit the hardest?

Findings:
September 2005

Consumer bankruptcies have nearly doubled over the past 10 years
604 is the average PLUS Credit Score for consumers with a bankruptcy
Indiana has the highest rate of bankruptcy of any state in the union
New bankruptcy laws require the completion of a mandatory financial counseling course prior to filing

There's a new law coming to town, and it's causing quite a stir. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has been signed and will go into effect on October 17, 2005. With almost 1.6 million U.S. consumer bankruptcy cases filed in 2004, the rate of bankruptcies has nearly doubled in the past ten years, according to U.S. government statistics. The new law will attempt to reduce the amount of bankruptcies filed in the United States by making it more difficult for consumers to qualify. States with current high bankruptcy rates can expect to be hit the hardest, and filing for bankruptcy as we know it will no longer be the same.

Can bankruptcy happen to you?
Bankruptcy is a legal procedure that provides debt relief to consumers who cannot pay their bills. Debt can take the form of revolving debt, such as credit cards, or installment debt, such as a home or car loan. Whether as a result of unforeseen events such as unemployment, medical problems, or divorce, or the inevitable downward spiral of bills, many turn to bankruptcy when the amount of debt becomes insurmountable. The decision to file for bankruptcy is a serious step, and is usually taken when other efforts to correct financial difficulties have failed.

Once a bankruptcy is filed, it can remain in a consumer's credit report for up to 10 years. Filing for bankruptcy is never an easy decision. In addition, it can have a devastating effect on a consumer's credit score, which may affect future credit opportunities. According to a study by the Experian National Score Index, the national average PLUS Credit Score^sm for consumers with a bankruptcy in their credit report was 604 – 78 points lower than the average for consumers without a bankruptcy.

Do you live in a state with a high rate of bankruptcy, or a high propensity for bankruptcy?

It's easy to determine who has already filed for bankruptcy, but did you know the likelihood of bankruptcy can also be detected? It's called a bankruptcy score, and it is used to determine the propensity of a consumer to file in the near future. A bankruptcy score is calculated using a combination of several key factors found in the consumer's credit report, including credit utilization, the number of late payments, and the number of inquiries. Credit grantors sometimes use a combination of bankruptcy scores and credit scores in their lending decisions. While a credit score evaluates a consumer's propensity to become delinquent on future payments, a bankruptcy score evaluates the likelihood of future bankruptcy. Keep in mind that a consumer's behavior can change over time and that economic factors (such as interest rates) can play a big part in future behavior.

According to a study by the Experian National Score Index, the following are the top five states with the highest bankruptcy rates compared to the top five states with the highest propensity to file for bankruptcy. It's good to remember that although the likelihood of filing for bankruptcy can be an indicator of higher risk, there are certainly many additional factors and circumstances that can contribute to a person actually filing for bankruptcy.

States with the Highest Bankruptcy Rates (Percent of population with bankruptcies filed during the last 10 years)	States with the Highest Propensity for Consumer Bankruptcy Filings (Likelihood to file during the next 12 months)
1. Indiana	1. Texas
2. Arkansas	2. Nevada
3. Oklahoma	3. New Mexico
4. Nevada	4. Louisiana
5. Tennessee	5. Arizona

How can the new bankruptcy law impact you?

Here are some key changes that consumers will notice once the law goes into effect:

Those planning to file must take a mandatory financial counseling course from an approved agency prior to filing.
A "means test" will be enforced to determine who is eligible to file a Chapter 7 or Chapter 13 bankruptcy.
Attorneys will determine whether clients qualify for Chapter 7 or 13, and be held accountable. As a result, consumers may experience increased attorney's fees.
An approved financial management course will need to be completed in order to complete either a Chapter 7 or Chapter 13 bankruptcy.

Gone are the old days of filing for bankruptcy once the new bankruptcy law goes into effect. The new law makes it even tougher for consumers to be eligible to file. And while most groundbreaking changes tend to be covered in controversy, the final verdict on the impact of this new law remains to be seen.