Are you looking into bankruptcy? If you’re having trouble paying your bills and covering the debts you owe, then one option may be to go through bankruptcy to eliminate unsecured debts or to get them onto a reasonable payment plan.
With Chapter 7 bankruptcy, you’ll ask the court to discharge many of your unsecured debts with the goal of eliminating those debts completely. A Chapter 13 bankruptcy differs, because while you may receive a discount on the debts you owe, you’ll still pay back a portion over the next three to five years.
All bankruptcies are reported to credit agencies
Many people wonder if there is a difference between selecting Chapter 13 or Chapter 7 bankruptcy in terms of the impact on their credit score. Remember, both Chapter 7 and 13 bankruptcies are reported to the major credit bureaus and will have a negative impact on your credit score. However, Chapter 13 bankruptcy may not have as big of an impact as other forms.
Why does Chapter 13 bankruptcy have a lesser impact on your credit score?
Chapter 13 bankruptcy has a lesser impact because you’re paying back a portion of your debt, even if it’s not everything. Future lenders may also appreciate that, upon finishing the bankruptcy, you were able to make three to five years of consistent payments.
This usually means that you’ll see your credit score take a hit, but it won’t be as bad as if you had elected to go into Chapter 7 bankruptcy.
Chapter 13 bankruptcy impacts you for less time
Chapter 13 bankruptcies also impact your credit score less over time. While a Chapter 7 bankruptcy stays on your credit for up to 10 years, Chapter 13 bankruptcies are only on your credit for seven. That means that you can get back to life without a bankruptcy on your credit much sooner, which may fit better into your future plans.
Bankruptcies aren’t all bad, and there are different options to help you get into the best possible financial position moving forward. It’s essential to select the right kind of bankruptcy for your needs.