Chapter 13: How Is My Borrowing Status Impacted After Bankruptcy?

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  2. Chapter 13: How Is My Borrowing Status Impacted After Bankruptcy?
Chapter 13

If you’re deep in debt, you may choose to ease your financial burden by filing for Chapter 13 bankruptcy. However, while this might help you immediately – you may still be concerned about your future. What will a Chapter 13 bankruptcy do to my credit score? Will I be able to qualify for a loan? How will I be viewed by lenders?

 

The answers can vary based on your individual circumstances, but some general rules of thumb can provide you guidance on how lenders view Chapter 13 bankruptcies, and what you can expect to see on your credit report. 

 How Lenders View Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy case, you will create a payment plan to make monthly payments to the court over three to five years. A court-appointed trustee then distributes the money to your creditors. Because you are paying some of your creditors, this type of bankruptcy can have less impact on your credit than a Chapter 7 bankruptcy. Under Chapter 7, unsecured creditors are typically not paid. This can make you a higher risk person than someone who filed for Chapter 13 and paid back some of their debt.

Getting Credit During and After Chapter 13 Bankruptcy

While going through the Chapter 13 process, which can take between three to five years, you typically cannot establish new lines of credit. However, the court understands that emergencies happen. Cars break down, refrigerators need to be replaced, medical emergencies happen, and other large expenses may occur that you might not have cash for (especially when you’re making monthly payments to the bankruptcy trustee). If you encounter an emergency, you can work with your bankruptcy attorney to review options. Your lawyer can ask the court to give you permission to take on a new line of credit and help you find a lender who might be willing to work with you while you’re going through the bankruptcy process. 

 

After you’ve completed your bankruptcy payment plan and any remaining debt has been discharged, you can try to establish new lines of credit. However, your Chapter 13 case will still be on your credit report, so you might encounter higher interest rates until you can prove you can handle the credit responsibly and make regular payments. Over time, your credit score will improve and your interest rates should decline. 

Check Your Credit Report

You should check your credit report immediately after your bankruptcy, and in the years that follow. This will help ensure your bankruptcy is listed correctly, and that it eventually drops off your report. 

Initially, after your bankruptcy is finalized, check your reports to ensure it’s listed as a “discharge” and that any debts listed are marked as “included in bankruptcy.” This will tell lenders that all debt was paid off during your Chapter 13 bankruptcy. Otherwise, they might still think you owe money to certain creditors.

 

Generally, a Chapter 13 bankruptcy case will remain on your credit report for up to seven years. However, this starts from the time you file for bankruptcy. So, by the time you complete your payment plan, three to five years have already passed, meaning you only have two to four years remaining. After that time, you should check your report to ensure the Chapter 13 notation is off your report. 

Contact an Attorney

If you are considering filing Chapter 13 bankruptcy to cope with mounting debt, and are worried about your future borrowing potential, it’s crucial to hire an experienced attorney to help you through the process. Our Chapter 13 bankruptcy experts can help you determine the best way to preserve your credit and increase your credit score as soon as possible. Don’t let debt ruin your life. Call (405) 529-9377 for a free case review by our bankruptcy attorneys.

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