Will a Chapter 13 Plan Look Better on My Credit Report Than Chapter 7? (2024)

FAQs

Will a Chapter 13 Plan Look Better on My Credit Report Than Chapter 7? ›

Because a Chapter 13 bankruptcy offers some hope that lenders will receive payment, future creditors sometimes consider it more desirable or as having less impact on your credit. So, a Chapter 13 could be better for you than a Chapter 7.

It can take a long time to repair bad credit, but lenders often view a Chapter 13 filing as better than a Chapter 7 filing because Chapter 13 bankruptcy requires you to make regular payments for several years.

Some filers see their credit score increase immediately after their bankruptcy is filed because they no longer have any debt. Keep in mind, there is no guarantee your credit score will rise, every individual's financial circ*mstances are different and what you do (or don't do) to rebuild your credit will be critical.

You may like to file Chapter 13 instead of a Chapter 7 bankruptcy, if you're behind on your mortgage payments and you're trying to save your home. Chapter 7 does not give you the opportunity to catch up mortgage payments or otherwise save your house. A Chapter 13 would be the appropriate chapter to file for that.

Chapter 13 bankruptcy is typically removed from your credit report seven years after the date you filed, and this is done automatically. The turnaround is quicker because you're required to at least partially repay your debt.

Success Rate for Chapter 13 Bankruptcy

Consumers should be aware that there is less than 50-50 chance filing for Chapter 13 bankruptcy will be successful, according to a study done by the American Bankruptcy Institute (ABI).

Capably managing your credit after bankruptcy could put you back above 700 — the good-risk range — in as few as four years. Again, this means minimizing your credit card balance utilization, paying off balances, and being punctual repaying your debts.

The truth is that bankruptcy can definitely tank people's credit scores. But in most cases, these people already have a bad credit score because of how much debt they have. In fact, the average credit score after a bankruptcy discharge can vary between 400 and 530.

If you know your score and file for bankruptcy, get ready to watch it plunge. A person with an average 680 score would lose between 130 and 150 points in bankruptcy. Someone with an above-average 780 score would lose between 200 and 240 points.

Your credit report actually lists your credit cards, mortgage, car loan, payment history, and any negative public records such as bankruptcy or foreclosure. Oddly enough, after your bankruptcy, your credit score may actually temporarily go up, because it will reflect your lower debt-to-income ratio.

Is Chapter 13 as bad as Chapter 7? ›

They're equally bad, and if you're at the point where you're considering bankruptcy, your credit score is beyond saving, for now. Whether you take Chapter 7 or Chapter 13, your credit score is going to take a devastating hit.

Chapter 7 and Chapter 13 bankruptcy both affect your credit scores the same. Having a Chapter 13 bankruptcy on your credit reports isn't any better for your score than a Chapter 7. However, the individual reviewing your credit might look at more than just your credit score.

The Bankruptcy Code states you can convert a Chapter 13 case to a Chapter 7 case “at any time.” You may want to consult with a bankruptcy lawyer to make sure that converting your case is your best option. In most cases, you simply file a “notice of conversion” and pay the conversion fee.

Filing for Chapter 13 bankruptcy will appear on your credit report, lowering your credit score. Chapter 13 bankruptcy stays on your credit report for seven years. Pre-bankruptcy credit history will determine its impact. If you had a good credit score before filing, the reduction may be greater.

All debts other than priority and secured obligations are general unsecured debt—and the amount you'll pay to your unsecured creditors in Chapter 13 bankruptcy will be the greater of your disposable income or the amount your creditors would have received had you filed for Chapter 7 bankruptcy. Disposable income.

You can't get new credit or take out a loan during your Chapter 13 case, but exceptions exist if you can get credit approval from the Chapter 13 bankruptcy judge.

If you know your score and file for bankruptcy, get ready to watch it plunge. A person with an average 680 score would lose between 130 and 150 points in bankruptcy. Someone with an above-average 780 score would lose between 200 and 240 points.

How long does a Chapter 7 bankruptcy stay on your credit report? In most cases, a Chapter 7 bankruptcy can stay on your credit reports for up to 10 years from the date you file bankruptcy. Once the 10-year period ends, the bankruptcy should fall off your credit reports automatically.

How long does it take to rebuild credit after Chapter 7? A bankruptcy stays on your credit report for 10 years. However, when a person files Chapter 7 liquidation bankruptcy, the debtor immediately and dramatically reduces their debt-to-income ratio, which could set the stage for a rising credit score in a year or two.

Chapter 13 bankruptcy, which allows consumers to organize and repay some of their debts while eliminating the rest, stays on your credit report for seven years. Note that these timelines start on the filing date for your bankruptcy, and not from the date your bankruptcy is discharged.