How Does Filing Chapter 7 or Chapter 13 Affect Your Credit?


Quick Answer

Whether Chapter 7 or Chapter 13 bankruptcy is chosen, the negative effect on the filer’s credit is the same, according to myFico. The extent of the impact depends on largely on the debtor’s credit profile prior to filing for bankruptcy and the number of accounts included in the filing.

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Full Answer

Both Chapter 7 and Chapter 13 bankruptcy proceedings have a negative effect on the filer’s credit report for 10 years after discharge, according to Nolo. Both bankruptcy chapters cause the same amount of damage to a credit score, but creditors may look more favorably on an indication of Chapter 13 bankruptcy than Chapter 7.

The difference between the two types of bankruptcy from a lender’s perspective is that Chapter 13 bankruptcy requires the debtor to repay all or part of the debt owed over a period of three to five years, advises Nolo. By contrast, Chapter 7 bankruptcy does not require that debtors repay lenders. Chapter 13 is viewed as the more responsible choice in the eyes of future lenders since it shows at least some effort was made by the debtor to repay his debts. Both chapters put a borrower in a better position to take on new debt since they free up the borrower from old debts and allow him to start out with a clean slate.

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