Although filing Chapter 13 can hurt your credit score, it gives immediate debt relief through the automatic stay. In this case, the debtor can regroup and reorganize their financial situation. Filing a Chapter 13 bankruptcy is challenging and will affect your credit score for seven years. Your credit score is usually based on your credit report’s information. Note that your credit score is involved in whether you choose to file bankruptcy.
Besides a Chapter 13 bankruptcy staying on your credit record for up to seven years, the struggle and the pressure of missed debt payments, creditor lawsuits, and repossession can be more damaging psychologically. In this case, it is essential to consult a bankruptcy attorney to help you make the right decision before filing for bankruptcy.
What is Chapter 13 Bankruptcy?
Under the chapter 13 bankruptcy law, an individual with a regular income develops a repayment plan for all or part of their debt for three to five years. This is also a wage earners plan and involves one monthly payment to the bankruptcy court divided by the bankruptcy trustee among the creditors.
The court must approve the payment plan based on individual income and expenses. Immediately the bankruptcy petition is filed, the bankruptcy court issues an order stopping creditors from pursuing the debtor. It also stops wage garnishment. Once the repayment agreement is fulfilled, the remaining debts can be discharged.
The Eligibility of Chapter 13
Filing for Chapter 7 bankruptcy allows the debtor to discharge some debts by selling nonexempt properties to pay creditors. However, in Chapter 13, the debtor gets to keep his properties and repays the creditors for a more extended period of up to five years. Below are some conditions that a debtor needs to fulfill to qualify for a chapter 13 bankruptcy.
You must not be a business entity.
Limited liability companies and corporations are not eligible for Chapter 13 but should file for bankruptcy under Chapter 11. Only individuals or jointly spouses can file for a Chapter 13 bankruptcy.
You must have filed your income tax returns.
You must prove to have filed your federal and state income tax returns for the previous four years. You should also provide the trustee with a transcript of your recently filed federal tax at least seven days before the first meeting of creditors.
The proposed repayment plan should repay all the required debt.
Under Chapter 13, you are required to repay some debts in full. They include:
- Secured Debts: Debt such as a mortgage or car loan must remain current during repayment. However, judicial and tax liens must be paid in full.
- Unsecured Debts: Unsecured debts that include child support, alimony, and non-dischargeable taxes must be repaid. Other unsecured debts have credit card debt, student loan debt, and personal loans.
Your debt must meet Chapter 13 requirements.
Only individuals with debt less than $419,274 of unsecured debt and $1,257,850 of secured debt are eligible for filing for Chapter 13 bankruptcy. In this case, the debt limits are usually adjusted every three years.
Credit counseling requirement.
When filing for Chapter 13 bankruptcy, the debtor must provide a certificate to prove they have attended a debt counseling course from an approved credit counseling agency at least 180 days before filing for Chapter 13 bankruptcy. The certificate can be filed with the initial paperwork or provided within 15 days after filing for bankruptcy.
The time stipulated in your previous bankruptcy case must have elapsed.
Debtors whose debt was discharged in Chapter 13 within the last two years and Chapter 7 in the last four years are not eligible for a Chapter 13 discharge. In addition, debtors who have violated a court order or failed to appear before the court and debtors who have petitioned the court to dismiss the case after creditors requested the court to lift an automatic stay are also not eligible.
Can You Access Credit After Chapter 13 Discharge?
Accessing credit after filing for bankruptcy is not a walk in the park, but it is not impossible. Working with an experienced bankruptcy attorney from Siddons Law Firm will ease the journey. They will refer you to lenders who are open to working with individuals with their bankruptcy cases discharged. In this case, the law will require you to file a motion in court requesting permission to get a new loan. This is where an attorney comes in to ensure the motion is successful.
How to Improve Your Credit Score After Bankruptcy
Fortunately, there are ways you can improve your credit score after filing for Chapter 13 bankruptcy. This includes:
Monitor Your Credit Reports
After discharge, check your credit report to see if it indicates that your case was discharged. Also, check for any false information that might lower your credit score. If any, notify the credit rating company to rectify the incorrect information.
Go Easy On Paying on Credit
After seven years of credit, you might be too desperate to acquire new credit. In this case, you might feel ready and able, leading you back into old habits that led to bankruptcy.
For that reason, it would be wise to stay off credit and figure out how to sustain your lifestyle without getting credit. In emergencies like medical bills, it is advisable to look for credit to only cover the emergency to avoid surplus credit. It is also important to make timely payments to rebuild your credit score.
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It is important to limit the amount borrowed because the loans come with strict conditions and high-interest rates, and you can quickly slip back into bankruptcy.
Although all extra cash after expenses goes to paying off creditors during the repayment period, and the debtor may have no savings afterward, acquiring a new loan is unwise. The debtor should avoid indulging in an expensive lifestyle that got him into bankruptcy in the first place. They should focus on rebuilding his financial situation without getting into debt.
However, if you find yourself in such a predicament, don’t hesitate to reach out to Siddons Law Firm in Media, PA. We also offer legal counsel and representation for all bankruptcy-related cases in the counties of Maryland, Caroline, Cecil, Dorchester, Hartford, Kent, Queen Annes, Somerset, Talbot, Wicomico, New Jersey, New York, and Pennsylvania.
Give us a call at 610-255-7500 for a free consultation and an assessment of your case.