How Long Does Chapter 13 Bankruptcy Affect My Credit Score?
By the book, a Chapter 13 filing falls off a credit report seven years after discharge (not seven years after filing), at least in most cases. The waiting period for Chapter 7 is a little longer, usually ten years. However, the judge usually discharges (closes) a Chapter 7 within months, and a Chapter 13 may last up to five years. So, for practical purposes, the official waiting period is about the same.
Unofficially, a Chapter 13 may no longer significantly affect your credit score after only a year or two. These debtors usually repay all past-due secured debt, like late car payments, and some unsecured debt, like credit card bills. Since the filing doesn’t adversely affect credit scores that badly, recovery is faster. Additionally, a Chicago bankruptcy lawyer helps former debtors hasten the recovery process.
Continue Good Habits
Most people file Chapter 13 primarily because of a business downturn, divorce, or other event that’s mostly beyond their control. However, let’s be honest. Reckless spending or poor money management is usually at least a contributing cause.
The Chapter 13 repayment plan lays the groundwork for Chapter 13 recovery. Usually, the debt consolidation payment is several hundred dollars a month, depending on the amount of allowed claims (mostly secured debt arrearage) and a few other factors. Many former debtors keep making this payment after discharge. However, instead of paying the trustee (person who oversees the bankruptcy for the judge), they pay themselves. As a result, they have a very large emergency fund after only a few months. This savings account usually enables them to weather the next financial storm that comes along.
Additionally, many people must give up luxuries, like eating out, to make the debt consolidation payment. If they ate at home every night for three or five years, they can most certainly continue doing that, even after they stop making debt consolidation payments.
Chapter 13 debtors must also complete mandatory budgeting classes. Do not let this information go in one ear and out the other one. Look for important tips during these boring classes that help secure your financial future.
Use Credit Responsibly
A Chicago bankruptcy lawyer is an important partner in this next area. Attorneys have professional relationships with bankers and other lenders who work with individuals that have damaged credit. Making a rather large purchase, like a new car, and remaining current on the payment is an excellent way to quickly raise a credit score.
Deep down, many lenders prefer to work with damaged credit borrowers. High-risk loans mean higher interest rates, which means higher profits for the lender.
Attorneys also direct former Chapter 13 debtors to credit card companies that also work with such individuals. We encourage people to obtain a card with a small credit limit, charge something every month, and repay the balance in full every month.
Some lenders don’t work with borrowers who have a Chapter 13 or other bankruptcy on their records. If that happens to you, don’t take it personally. It’s just business. Furthermore, if Lender A refuses to loan money, lenders B, C, D, E, and so on are literally just around the corner.
Rely on a Thorough Cook County Lawyer
No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. The sooner you reach out to us, the sooner we start working for you.