How Does Chapter 13 Bankruptcy Affect Your Credit?

You may be interested in utilizing Chapter 13 bankruptcy to get out from under your debt, but perhaps you have been concerned with the effect bankruptcy might have on your credit. That is an understandable concern, but it is important to remember that in many cases, the benefits of filing for Chapter 13 far outweigh the negative impact on your credit report. In addition, as people who are considering Chapter 13 are already in financial trouble, Chapter 13 will ultimately improve their credit score—even though the bankruptcy will typically appear on their report for 7 years. To learn whether Chapter 13 can help you, contact our office today to speak with a St. Petersburg Chapter 13 attorney

Bankruptcy’s Impact on the Credit Score and Credit Report

Almost every consumer in the United States has a credit score and corresponding credit report. Your credit score is a number based on your creditworthiness. A lender may use a credit score to determine whether to loan you money. Some of the loans typically take into account your credit score include the following:

  • Credit cards
  • Mortgages
  • Auto loans
  • Personal loans
  • Business loans

A credit report keeps track of your credit history, so that potential lenders may see what kind of credit you already have available and if there has been any delinquency.

The credit score is a calculation that takes into account many factors, with bankruptcy filings being only one factor among many that will affect the credit score. Therefore, you cannot know in advance the exact effect on the credit score that filing a Chapter 13 bankruptcy will have. What is known is that many people contemplating a Chapter 13 bankruptcy will already have poor credit due to missed payments and default. A Chapter 13 bankruptcy will reorganize the debt, and successful plans will bring the debt out of default. Getting credit back on track by making timely payments will have a positive impact on your credit score, particularly over long periods of time.

Obtaining Credit After Bankruptcy

It is true that a Chapter 13 bankruptcy filing can remain on a credit report for seven from date of filing. Some Chapter 13 filers have been able to obtain new lines of credit within one to three years from the date of filing. For instance, filers interested in purchasing a new home can qualify for a Fair Housing Administration mortgage after having made at least twelve on-time payments under a Chapter 13 bankruptcy plan. This is known as a “seasoning requirement.” Fannie Mae, the nation’s largest mortgage lender, has a two-year seasoning requirement. While many people believe that filing bankruptcy dooms a person to never qualifying for credit again, this is simply untrue.

A Lender’s Perspective on Chapter 13 Bankruptcy

A lender, in determining whether to extend new credit to a consumer, will review the person’s credit report and credit score. If you are delinquent on multiple accounts, you will appear to be a poor credit candidate. A lender will rightfully be concerned that if you are not paying other debts, that you will also not pay this new debt. A Chapter 13 bankruptcy, on the other hand, will demonstrate to lenders that you have the ability to make payments on all debts and you are making an honest effort to do so. After the completion of a Chapter 13 bankruptcy plan lenders may also view you as less of a risk because some or all of the debt was repaid, rather than liquidated.

Call Us Today to Speak with a Chapter 13 Bankruptcy Lawyer in St. Petersburg

Chapter 13 bankruptcy is a great tool to get your credit back on track. The attorneys at Berkowitz and Myer will advise you on whether filing a Chapter 13 bankruptcy is right for you. To find out whether you are a good candidate for Chapter 13 bankruptcy, call the St. Petersburg firm of Berkowitz & Myer at (727) 344-0123 today for a no cost, no-obligation consultation. You can also send us an email through our online contact form.

no-cost consultation: (727) 344-0123