As a Chapter 13 bankruptcy lawyer Memphis TN turns to with some of their toughest questions, I know one of the most common questions people ask about Chapter 13 is “Will it hurt my credit?” In the short term, it might. But not necessarily. And in the long term, it can actually make everything better.
If you’re considering bankruptcy, your credit probably already isn’t very good to begin with. You probably owe a lot of debt on your house or car that you can’t pay back. You may have high credit card debt building up. And then you also might be facing lawsuits or wage garnishment. If any one of those things is true, you already have big credit problems. So generally you won’t have a hard time with Chapter 13 hurting your credit much more than before.
Bankruptcy can stay on your credit for up to 10 years after filing. But for Chapter 13, it will usually be removed after seven years. During that time, while your bankruptcy is underway, it will help your credit to make the regular payments.
While Chapter 13 does show up on your credit report, it also offers the opportunity to make your credit much better.
Improving Your Credit After Chapter 13
You can’t improve your credit when you’re so far into debt that every dollar goes to paying it back. That’s just treading water. It will keep things at the status quo.
But after your Chapter 13 has been completed, you’re out of debt and you have the perfect opportunity to rebuild your credit.
To do so, you should stay on top of your credit report. Check for any false information or errors in your records. Then be very careful about how you take on any new credit. If you do choose to get a credit card, use it for small purchases and pay them back immediately. And lastly, pay close attention to how you spend your money. Set a realistic budget and stick to it. This should come more naturally after a Chapter 13 because you’ll already be used to a payment plan. If you think you’ll struggle, consider getting a credit counselor or accountability partner.
With a little focused work, a Chapter 13 bankruptcy can be the best possible option for your credit, because it gives you the fresh start you need.
Thanks to our friends and contributors from Darrell Castle & Associates, PLLC for their insight into Chapter 13 bankruptcy.