A Chapter 13 bankruptcy is a type of bankruptcy in which an individual is able to restructure his or her debt to make it easier to repay. In this type of bankruptcy, individuals often receive a discharge of much of that debt, including many of the credit cards and other unsecured debt he or she has. In many ways, this is a negative impact to the credit score, but it can be better than some alternatives.
Chapter 13 and Credit Scores
When an individual files Chapter 13, he or she is asking the courts to help them to overcome a financial hardship. It may be that the financial difficulties came from medical bills or other uncontrollable occurrences. However, in most cases, financial mismanagement contributes to these claims. As such, lenders and credit bureaus consider any form of bankruptcy to be a negative aspect. It will negatively impact a credit score.
However, in many cases, it is the better option for the individual in the long run. With a Chapter 13 bankruptcy, the individual is able to restructure debt that is otherwise difficult to repay into a manageable plan. Within three to five years, most of that debt will be discharged or repaid by the borrower. Most people who file this type of bankruptcy would be likely to repay their debt over decades without the aid of the filing. In other words, for those who cannot repay their debt in its current format within five to ten years, filing bankruptcy can help them to get back on track financially, and with a better credit score, sooner than working the current method.
When filing Chapter 13 bankruptcy, there are several factors to keep in mind.
- Not everyone will qualify for Chapter 13 bankruptcy. Some may need to file Chapter 7 or work with lenders outside of bankruptcy to repay debts.
- In many instances, a Chapter 13 bankruptcy has less of a long term impact on credit scores than that of a Chapter 7 bankruptcy since the individual did take the time to try and repay the debts.
- Chapter 13 does remain on the credit report for up to ten years, and is a public record.
Keeping these things in mind, consider the benefits and downside of filing bankruptcy before doing so.
Hire an Attorney
Anyone who is considering their options in bankruptcy should speak with an attorney to determine if this is the right decision for their unique situation. In many cases, an attorney can help give guidance on what the best option is.
