Will Filing for Chapter Bankruptcy 13 Ruin My Credit Score?

When you decide to file bankruptcy, it will be reflected on your credit report for years to come. As such, there is really no way around the brutal truth that filing will have a negative effect on your rating. If you are able to afford a repayment plan, choosing to file under Chapter 13 bankruptcy may help you recover more quickly and save your financial reputation.

Why Creditors Prefer Chapter 13 Instead of Chapter 7

It's no secret that lenders prefer Chapter 13 filing to that of Chapter 7 bankruptcy, but why exactly is this? It basically boils down to the fact that with Chapter 13, your creditors have some hope of future payment. In contrast, when you file under Chapter 7 bankruptcy, if you qualify, their chances of receiving any payment is dim.

Your Credit Score Under Chapter 7 Bankruptcy

Under Chapter 7, unsecured debts, such as medical bills and credit card companies, don't usually receive any kind of payment. This is because Chapter 7 doesn't require you to make payments to creditors or set up any kind of payment process. Instead, any owned property that cannot be protected under your state's exemption laws must be turned over to a trustee that is assigned by the court. Your trustee then sells the property for whatever they can get for it and uses the proceeds from the sale to pay off your creditors. However, most filers are able to exempt the majority, if not all, of their assets, thus keeping them out of the reach of the court. This means there is often nothing left to pay off the creditors.

When Long Island borrowers fall behind on bills and can no longer make their minimum monthly payments, they usually consider calling a Long Island bankruptcy attorney and filing for relief. The two bankruptcy options available are Chapter 7 or Chapter 13. Depending on your situation, either option may be the answer you need to move forward and repair your financial life.

One of the mistakes many people make is waiting too long to seek out help. You can stop aggressive collection action before you have your car repossessed or a bank account frozen. These types of disastrous events can be prevented by seeking relief by the courts.