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Chapter 13 bankruptcy and your credit

On Behalf of | Oct 11, 2022 | Chapter 13 Bankruptcy

Filing for bankruptcy under Chapter 13 may affect your credit score. But there are ways to improve your credit.

Chapter 13

 A Chapter 13 bankruptcy allows debtors to repay their debts over an extended number of years. This filing causes less harm to your credit rating than a Chapter 7 bankruptcy.

Repayment is made under a repayment plan. New debt cannot be incurred during Chapter 13 unless a court grants permission. Debtors must file a petition outlining the reasons for acquiring debt.

But there are administrative and filing costs associated with Chapter 13. Other debt relief options may be a better alternative and have less impact on your credit.

FICO credit score

Credit scores are a measure of your creditworthiness. Scores range from between 300 and 850. High credit scores are more appealing to lenders and provides easier access to credit at better terms and lower interest rates. Lower credit scores make it more difficult to obtain credit, which is generally available only at higher interest rates.

Credit scores are based on payment history, outstanding debt, length of time that credit accounts are held, mix of owed credit and new credit applications. Debt collections and bankruptcies can also lower scores. The impact of a Chapter 13 bankruptcy depends on your financial situation.

Debt relief

Debt relief companies negotiate for a lower balance than what is currently owed. The accounts are usually past due when these companies engage in negotiations. If the company settles your accounts, your credit may be marked as paid settle for less, which may improve credit scores over time.

Chapter 13 and credit

Your credit score before filing for Chapter 13 determines the amount of the drop after filing. A higher credit score may lead to a more substantial drop.

According to some estimates, you may lose up to 200 points if you have better credit. Debtors with a poor credit rating may lose up to 100 points.

A Chapter 13 bankruptcy remains on your record for seven years. A Chapter 7 filing is on a report for 10 years.

After discharge, your credit score should improve, and you may be able to file for credit. When the repayment plan is completed and discharge is granted, most unsecured debt is forgiven. Debt to income ratio drops.

Creditors may not take further action to recover debt after filing so they cannot report late payments or negative information to credit bureaus. This also improves credit scores.

Attorneys can provide you with options if you are facing insurmountable debt. They can also file the appropriate documents.


Kingcade & Garcia | A Miami Law Firm