There are many considerations to take into account when you’re considering filing bankruptcy. One of the most common questions people will ask themselves is whether they should file Chapter 7 or Chapter 13 bankruptcy. One of the factors that will go into that decision may be how your credit score is affected. Today we’re looking at how filing Chapter 13 bankruptcy can affect your credit score.
Exactly how much will a Chapter 13 bankruptcy lower your credit score?
Remember that your credit score is made up of your personal info and financial data. It gives you one number that’s supposed to show how often you’ve made on-time payments for various loans and credit lines. It also shows if you’ve been involved in lawsuits, liens, foreclosures, and bankruptcy. In most cases, credit scores are put into the following categories:
- 720+ Excellent
- 690 – 719 Good
- 630 – 689 Fair
- 629 or less Poor
Filing Chapter 13 bankruptcy can result in a lower credit score in the short term. How much it will affect your score depends on what it was prior to the bankruptcy. You may see it drop between 130 and 240 points. In general, the higher your score was before the bankruptcy the lower it’s going to drop after Chapter 13 is filed.
Does this mean you can’t ever get a loan again?
No. Unlike Chapter 7 that is chosen by debtors with minimal financial resources, Chapter 13 is for higher-income debtors who are able to direct their disposable income to make monthly payments for up to five years. It requires a long-term commitment and often looks better to lenders than Chapter 7 does. As a result, you may get a loan sooner than you think.
Chapter 13 bankruptcy won’t be on your credit report permanently
Another important factor to consider is that you’re not stuck with a Chapter 13 bankruptcy on your record for the rest of your life. At the longest, it will be there for seven years and that clock beings ticking when you file – not when the case is discharged. This is essential because Chapter 13 takes either three or five years to discharge and you don’t want to wait that long for the clock to even begin.
Are you not sure what to file? Call us today for a free consultation
Are you not sure if you should be filing bankruptcy? Or are you sure that you should but you don’t know which Chapter to file? The good news is that we are here to help you. Just contact The Law Offices of Paul Y. Lee at 951-755-1000 and ask for a free bankruptcy consultation. We will evaluate your situation and let you know our best advice for how to proceed. Don’t stress about your finances for one more minute – call us now.
