You probably know that filing for Chapter 7 bankruptcy will affect your credit score. Your score will go down, but then eventually the bankruptcy filing must be removed from your credit history.
But how does it work for Chapter 13 bankruptcy? What are some of the differences? Especially since Chapter 13 bankruptcy is a repayment plan that occurs over a 3 to 5 year period.
Here are 4 things to know about Chapter 13 bankruptcy and your credit score:
1. Just a basic point: Bankruptcy often helps your credit score more than it hurts it. Why? Because if you’re under a lot of debt and the lawsuits and liens and missed payments keep happening, then your score will continue to suffer. But when you file for bankruptcy, it goes down at first, but then you’re in a position where you are released from your debt burden and can begin to do the things you need to improve it, like making payments on time.
2. During the life of your Chapter 13 bankruptcy, the payments you make may not get reported to the credit agencies. That is, you may not get credit for having good credit. This is because there is no requirement for creditors to report this information to credit agencies prior to the end of a Chapter 13 bankruptcy. Once you finish the Chapter 13 bankruptcy process, of course, your efforts will be reflected in the score.
3. For all intent and purpose, your credit score during a Chapter 13 bankruptcy does not actually matter so much. Why? Because you can’t sign up for a new credit card, take out a mortgage or obtain new credit during a Chapter 13 bankruptcy without permission from the Chapter 13 trustee. If you can’t get new credit, then your score isn’t so relevant during that 3 to 5 year period.
4. Once you’ve completed your Chapter 13 case, creditors then have to report your outstanding balance as zero to the credit agencies. That’s where the payoff comes from in terms of your credit score. Of course, not all debts are canceled in a Chapter 13 bankruptcy. Student loans, mortgages and car loans may survive. In those cases, the remaining balance is reported.
For more information and to set up your free bankruptcy consultation, contact Haines & Krieger at 702-880-5554.