How Chapter 13 Bankruptcy Affects Your Credit

When filing for bankruptcy protection, a very common question we hear often is about how chapter 13 bankruptcy affects your credit. No matter which type of bankruptcy works best for your personal situation, once you file bankruptcy, your credit report will reflect that for many years. While filing for Chapter 13 bankruptcy may negatively affect your credit, it should be considered short-term only, as bankruptcy can actually speed up the time it takes you to recover financially.

Chapter 13 Bankruptcy and Your Credit

How much your credit score will drop when filing for Chapter 13 bankruptcy protection typically depends on where your credit score was prior to filing. If you had a relatively high score you can expect a drop in as many as 100 points, however, most individuals that come to the decision to file for Chapter 13 bankruptcy have been struggling for debt for some time and thus will have lower than average credit scores. If you do have a low score, bankruptcy won’t drop it very much more.

Improving Credit after Chapter 13 Bankruptcy

Both during and after your Chapter 13 case, you should obtain your credit reports from each of three major credit bureaus to keep an eye on the information and ensure everything is accurate. Furthermore, you want to ensure that you report shows a discharge post-bankruptcy. In some cases, you can obtain lending to buy a home in as little as two years after a bankruptcy, but lenders want to make sure that you were able to stick to the repayment plan and successfully pay back your creditors. Furthermore, you are more likely to build your credit more quickly after a Chapter 13 bankruptcy because lenders prefer Chapter 13 versus Chapter 7 bankruptcies. The reason for this is that unsecured creditors typically see no repayment in a Chapter 7 bankruptcy case, whereas, in a Chapter 13 bankruptcy case, unsecured debt is at least partially paid back.

Odds are, that you are at least considering filing for bankruptcy, your credit score isn’t perfect. With this in mind, you must weigh the consequences to your credit if you file for bankruptcy in Elk Grove with what your credit will be if you continue to struggle with debt and miss payments. On-time payments weigh heavily in factoring your actual credit score, and so if you are struggling to stay current, it makes sense to consider filing for a Chapter 13 bankruptcy in order to obtain the relief from debt and time to repay your debts that you need.