Bankruptcy Lawyer Bryan W. Stone answers the question: “What is Chapter 13 bankruptcy?”
If you’re considering filing for bankruptcy one of things you’re likely concerned about is the impact filing can have on your credit report and thus on your financial future. Filing now may be the right thing to do, but you also likely have plans for down the road that you don’t want to see go up in flames thanks to the bankruptcy. Some are curious to know whether one type of bankruptcy is better for your future credit score than another. To learn more, keep reading.
First things first, let’s be clear that filing for bankruptcy will not be good for your credit in the short-term, regardless of what type you end up filing. Bankruptcy is bad news for your credit and your score will drop precipitously after filing. The good news is that the damage isn’t permanent, with bankruptcies eventually dropping off your credit report. Additionally, something that many people forget is that while bankruptcy can be hard on your credit early on, in the long-run freeing you from all that debt and allowing you to start fresh can be a boon financially.
Something to consider when weighing your options is the length of time each form of bankruptcy will remain on your credit history. Generally, Chapter 7 bankruptcies remain on your credit report for a full 10 years after filing. Chapter 13s, however, typically fall off sooner. In most Chapter 13 bankruptcies, credit reports will stop showing them after 7 years has passed, meaning the previous damage will cease to be visible sooner.
In terms of the damage caused by both Chapter 7 and Chapter 13, the impact on your score is likely similar. Both will result in a big tumble and both will improve over time. Though the damage to the score may be similar, the harm may not last as long under a Chapter 13 given that the bankruptcy falls off your report sooner. Additionally, future creditors typically take into account the differences between a Chapter 13 and a Chapter 7 when reviewing your credit history, and this can prove to be an important factor.
In a Chapter 13 bankruptcy, a debtor files to restructure debts and pay them over a three to five-year period. In a Chapter 7, debtors wipe out their debts, typically without paying them back. Though both are forms of bankruptcy, lenders tend to look more favorably on those with Chapter 13 bankruptcies on their records, viewing this as a slightly more responsible way of handling debt because efforts were made at repayment.
It should be underlined that there are no hard and fast rules when it comes to bankruptcy. Each situation is different and the way they impact your scores will be unique given your current and future credit history. Though experts generally agree that a Chapter 13 bankruptcy does less harm to your credit than a Chapter 7, that isn’t to say a Chapter 13 is right for everyone. If you’ve consulted with an experienced bankruptcy attorney and you both agree that a Chapter 7 is best, then that’s the path you should take. After all, that’s much better than trying a Chapter 13 you aren’t prepared for only to have that fall apart down the road.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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