Each type of bankruptcy is different. Chapter 13 bankruptcy is one of the lengthier options available. Individuals who qualify for Chapter 7 bankruptcy could discharge certain eligible debts within a few months of filing their initial petition with the courts. Chapter 13 bankruptcy takes much longer to complete because the courts require a structured repayment plan.
Chapter 13 filers complete up to five years of monthly payments. They negotiate the repayment plan as part of the Chapter 13 process and must then commit a substantial portion of their disposable income toward their monthly payment made to the courts. They can only discharge the remaining balance on eligible debts after they make all of the scheduled payments. The whole process can take years longer than a Chapter 7 bankruptcy.
How long after a Chapter 13 bankruptcy must filers wait to become eligible for competitive credit opportunities again?
Options open up early after a discharge
There are limits to how frequently individuals can file for personal bankruptcy. Typically, they must wait years after a discharge to be eligible to file again. Credit card companies and other lenders are therefore in a position to profit substantially if they provide credit to those who have recently completed the bankruptcy process.
People who have recently discharged some of their debts may start receiving offers for secured credit cards and other small lines of credit within a few weeks of their discharge. Those early offers may not have the best terms, but they provide an opportunity to start developing a positive credit history. With regular on-time payments, many filers qualify for more competitive and larger lines of credit within two to three years of their discharge.
Credit reporting isn’t permanent
Bankruptcy shows up on an individual’s credit report. However, the credit bureaus can only report a discharge for a set number of years. A Chapter 7 bankruptcy typically leads to a 10-year reporting window. The credit bureaus can report a Chapter 13 discharge for seven years.
Once the time passes, there is no official record of the bankruptcy on an individual’s credit report anymore. They can then qualify for competitive financing terms. The sooner people contemplating Chapter 13 bankruptcy take action, the sooner the record of their discharge comes off their credit report.
Taking control of challenging financial circumstances by pursuing a Chapter 13 bankruptcy can help people reduce their monthly obligations, eliminate certain debts and even improve their credit opportunities years in the future.
