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Chapter 13 Bankruptcy and Building Credit

Published November 11, 2020 by Sasser Law Firm
Building Credit During Chapter 13 Bankruptcy – Is It Possible?

When you’re in Chapter 13 bankruptcy, it may feel like a purgatory that limits your financial options. You can, however, use this time and this tool to strategically improve your credit-worthiness.

How Chapter 13 Bankruptcy Affects Your Credit Report

The credit report impact of a bankruptcy filing should be considered. Once you file, your credit score may take a hit if your credit was good beforehand. If your credit report was poor then the impact will be less or nonexistent.  How much your score will suffer depends on many factors, some of which are nearly impossible to predict.

When Does Chapter 13 Bankruptcy ‘Drop Off’ Your Record?

Completed Chapter 13 bankruptcy cases are removed from your credit report by all three major credit reporting agencies seven years after filing your bankruptcy case. Thus, if you enter into a five-year Chapter 13 repayment plan, you will have to wait two more years for the bankruptcy to be removed from your credit report.

In fact, by following a handful of proven methods, you can begin to repair your credit almost immediately. If you stick with the plan, you could be back in the market for a car loan or even a home mortgage in as little as two years.

What Is a Typical Credit Score After Chapter 13 Bankruptcy?

This much is certain: Once you file under Chapter 13, your credit score will likely drop into the 500s or 600s.

Your score won’t go up right away. But the sooner you get started on good credit habits, the sooner the impact will show on your report.

Your post-bankruptcy credit score doesn’t mean you can’t get some forms of credit. However, it may be more difficult, and the terms will likely be less than optimal especially as an initial matter.  However, it is a good idea to establish some revolving consumer credit accounts to help to rebuild your credit score. Over time those positive tradelines on your credit report will lead to more credit opportunities on better terms.

How to Get a Personal Loan While in Chapter 13 Bankruptcy

If you want and/or need a personal loan, there are possible ways to make it happen. For example:

  • An unsecured credit card. Responsible use and timely payments can lead to a better credit score. If necessary, obtain a secured credit card in order to build your credit.
  • Having collateral on hand. Personal valuables, such as jewelry or antiques, are a way to collateralize a loan with a finance company or pawn shop.
  • Talk to a cosigner with great credit.
  • Talk to friends and family.

What Secured Debt Can be Incurred During Chapter 13 Bankruptcy

It is very common for a debtor in Chapter 13 bankruptcy to finance a vehicle. Is it less common but still possible to obtain a conventional mortgage loan while in Chapter 13.

Legal Restrictions on Incurring Debt while in Chapter 13

If you are in Chapter 13 bankruptcy and engaged in business it may be necessary to obtain court approval prior to incurring debt. There may also be other limitations on incurring debt while in Chapter 13 and you should consult an attorney if you have questions about those limitations.

Get Help from Our Chapter 13 Bankruptcy Lawyers

For more than 20 years, the Sasser Law Firm in Cary, NC has been helping individuals and business owners sort through financial hardships. The firm has filed over 9,000 bankruptcy cases.  Three of the firm’s four attorneys are board-certified specialists in consumer bankruptcy law.  We offer free, no-pressure, consultations. Call Sasser Law Firm at (919) 319-7400 today.

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