The credit score takes a solid beating when bankruptcy is filed in general. But the common question is to know which Chapter impacts the credit scores the most. The impact may also last for several years when bankruptcy is filed. Filing for bankruptcy under Chapter 13 is slightly more beneficial and lighter on your credit score, especially when compared to Chapter 7. If it is possible not to file for bankruptcy, that shall be the best option. To know if you need to file for bankruptcy or not, log on to Recovery Law Group to get a host of information and make the right decision
What is the choice of a lender?
The credit score impact is determined by the lender’s inclination towards the debtor choice. Most lenders have a slight inclination towards Chapter 13 filers. Unsecured debtors are likely to receive more portion of their debts when Chapter 13 is filed, hence, they always like Chapter 13 filers. This is quite reverse during the Chapter 7 bankruptcy. Unsecured creditors might end up receiving nothing out of the Chapter 7 bankruptcy and all their debt has to be written off. Also, the exemptions available under Chapter 7 are beneficial. A Chapter 7 bankruptcy can very less nonexempt assets for liquidation and recovery. Overall, the debt released or discharged is larger in Chapter 7. This is the primary reason why lenders do not seem to prefer Chapter 7 history debtors.
On the other hand, with Chapter 13 3-5 years, there is an attempt by the debtor to pay off the maximum chunk of secured as well as unsecured debts. Until unless the claims are valid and well supported with a proof, the debtor ends up paying off a good chunk of debts. This makes it favorable for a lender and hence, Chapter 13 is the lender’s choice.
Credit score impact
Filing of bankruptcy is usually the last choice. If you are considering filing bankruptcy, you must have been struggling with delayed or missed payments from some time now. This has already impacted your credit score significantly negatively. Filing of bankruptcy will only prevent further damage to this already impacted credit score. But, if your credit score is high and you choose to file bankruptcy, the impact will be huge too. There can be a drop of about 100 points depending on circumstances on an average once you file for bankruptcy.
The formula used to calculate or estimate credit score is very different. Different agencies use different formulae and are reluctant in disclosing the same. Filing bankruptcy via Chapter 13 or Chapter 7 has an almost equal negative impact on the credit score. But, as realized earlier, Chapter 13 filers might have some edge for future, if they are to avail any sort of credit in future after filing bankruptcy previously.
Availing credit after filing bankruptcy
The Chapter 13 payment plan lasts for about 3-5 years. During this period, the filer is prohibited from taking any additional credit. This is one of the biggest flaws of Chapter 13 as during an illness, or major breakdown or any other such circumstances, you just cannot avail any sort of credit during that period. The bankruptcy court understands certain situations wherein additional credit can be necessary, for this to be allowed, your attorney might have to pass a motion in the court, which shall allow you to workout with some creditors that facilitate credit to even people in Chapter 13 bankruptcy payment plan.
Availing credit after bankruptcy will cost big. High-interest rates and a lot of paperwork is common if you try to avail credit after bankruptcy. It is key to enter a stabilized financial situation and then take credit only if necessary. Once, you start availing credit and paying it off in right times, the credit score as well as interest seems to improve with time. There is not much difference in this improvement between a Chapter 7 or Chapter 13 bankruptcy filer California. However, in crunch time, Chapter 13 filers are bound to get a slight advantage over Chapter 7 filers.
Credit score reporting corrections
It is a good practice to verify the credit reports. After filing bankruptcy some of the debts might still be listed as ‘unpaid’, which can negatively influence the credit eligibility in the future. Also, the debt released should be appropriately reported as ‘included in bankruptcy’ and not ‘dismissal’. For understanding your credit report or to know more about bankruptcy or the Chapters, call 888-297-6203 now and address all your questions from in-house professionals.