Does a Chapter 13 ruin your credit?

Any bankruptcy that you file, whether it is a Chapter 7 or Chapter 13, affects your credit rating. In the case of a Chapter 13 bankruptcy, it may remain on your report for up to 10 years. However, that does not stop you from getting new lines of credit within one to three years after filing for bankruptcy. Just be aware that the interest rate for such credit is higher.

The advantages of filing Chapter 13 include:

  • You have more time to make payments, can adjust the amount of payments or give up property you are paying on
  • Once a Chapter 13 is completed, creditors cannot make you pay them in full
  • Making payments under a Chapter 13 means you keep the property you are paying for
  • You can get new lines of credit within three years, but the interest rates go up
  • Some lenders are willing to work with someone who has declared bankruptcy
  • Filing for bankruptcy gives you a head start on rebuilding your credit
  • Bankruptcy alleviates many of your financial obligations, except child support and alimony
  • You still have to pay your student loan off, if you have one, but declaring bankruptcy stops creditors from aggressively pushing collection action

The disadvantages of filing Chapter 13 include:

  • Taking up to five years to repay your debts
  • Debts are paid out of disposable income left after you have paid for your living necessities
  • You must give up all your credit cards
  • If you do not have a mortgage, it is difficult to get one after filing bankruptcy
  • You cannot file Chapter 7 if you have been through a Chapter 13 within the last six years
  • Declaring Chapter 13 makes it more difficult to declare Chapter 7 since you had disposable income to have your Chapter 13 discharged
  • You are still responsible for paying child support and alimony
  • Your student loans, if you have them, cannot be discharged
  • You must explain to the bankruptcy judge how you got into a situation where you needed to declare bankruptcy
  • You may still be obligated to pay some debts at the end of the Chapter 13 payments to creditors, such as mortgage lien
  • You cannot file for Chapter 13 if there is a prior Chapter 7 or Chapter 13 case that was dismissed within the past 180 days due to you violating a court order or if you asked for a dismissal after a creditor sought relief from an automatic stay

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