Declaring bankruptcy is one of the most effective ways to regain financial freedom if you’re struggling with overwhelming debt. However, through this process, you can expect your credit to be negatively impacted. Because of this, deciding to file should not be taken lightly. It’s important to consider what will happen to your credit if you use bankruptcy as a debt relief solution. In a Chapter 13 bankruptcy, which is one of the most common types of filing options, you are given the opportunity to reorganize the debt into a manageable repayment plan that lasts three to five years.

What Impact Will Chapter 13 Bankruptcy Have on Your Credit?

Chapter 13 & Your Credit Score 

There are several factors used to determine a credit score, including a history of delinquent payments. If you are dealing with mounting debt and finding it difficult to make the payments on time or at all, there’s a good chance your credit score has already decreased. In this case, filing Chapter 13 bankruptcy isn’t likely to make it drop much further.

Conversely, the higher the score is when you file, the more it will fall. Since you repay a portion of the debt in Chapter 13 instead of completely discharging it as in Chapter 7, you may not see as significant an impact. In addition, a Chapter 13 bankruptcy will stay on a credit report for approximately seven years as opposed to 10 years when filing a Chapter 7. 

Acquiring New Credit During & After Chapter 13

Generally, filing a Chapter 13 bankruptcy will inhibit you from acquiring any new credit until you have completed the repayment plan. This is done to preserve your efforts to stay current on the plan. However, in an emergency, a bankruptcy attorney may request permission from the court allowing you to take on new debt.

If permitted, they will also help you find a lender willing to extend credit to a Chapter 13 debtor. Contrary to popular belief, once the remaining balances on the unsecured debt have been wiped out at the end of a bankruptcy case, you can start rebuilding your credit again fairly soon. 

Although your credit may suffer in the short term from filing a Chapter 13 bankruptcy, the long-term benefits of debt relief are typically well worth the initial consequence of a lower score. Before deciding whether to file, it’s best to seek legal counsel. An experienced bankruptcy attorney at Bueker Law Firm will explore all the options with you to determine the most suitable action to take for your specific financial situation. The firm’s legal team has helped numerous Stuttgart, AR, residents successfully eliminate their debt. Contact them at (870) 673-1313 or visit their website to learn more.