What Will Happen to My Credit Score After Filing Chapter 13 in Arizona?

Credit Score

If you are seeking a way out of overwhelming debt but have concerns about protecting assets, Chapter 13 bankruptcy may be an option to consider. Your life is disrupted by creditors calling and making threats, and you fear that they are close to taking legal action. By filing Chapter 13 bankruptcy, you can stop creditor efforts and discharge qualifying debts through a debt repayment plan. However, you may have concerns about what will happen to your credit score after filing Chapter 13 in Arizona.

There are implications for your credit when you file bankruptcy, and they may seem daunting. However, your financial future also looks bleak if you are not proactive about resolving your debt. Bankruptcy delivers multiple benefits, giving you a new start that is far more enjoyable than struggling with the weight of debt. Your Arizona Chapter 13 bankruptcy attorney will describe how your credit may be affected, and a few points about your credit score are informative.

Chapter 13 Bankruptcy Cases

Under bankruptcy laws for Chapter 13, you may qualify to discharge your qualifying debts through debt reorganization. Through the process, your debts are restructured and reduced to an amount you can afford for a monthly payment. Your debt repayment plan you pay will typically be much less than the total amount owed to creditors. When you complete the plan within 3 to 5 years, you will be able to eliminate qualifying debt that remains. Keep in mind that Chapter 13 is for unsecured debt, so you cannot discharge secured debts like your mortgage.

There is one key eligibility rule for Chapter 13, which is that you must have a job. This is why this type of bankruptcy is sometimes referred to as the wage earner’s bankruptcy. You need to be employed so that you have income to pay back creditors under the debt repayment plan.

Benefits of Chapter 13

From a personal standpoint, a significant benefit of going through bankruptcy is that your stress is eased and you can look forward to your future. Some additional advantages include:

  • When you file your bankruptcy petition, the court imposes an automatic stay on creditor efforts to collect. They cannot sue, garnish wages, foreclose, or engage in other unlawful collection activities.
  • As compared to Chapter 7, there is a benefit in Chapter 13 that may be important to you if you own significant assets. Chapter 7 may lead to liquidation of your assets, but there is no sale of your property in Chapter 13.
  • You cannot discharge your mortgage in bankruptcy, but you can roll arrearages into your debt repayment plan. This factor may help you stay current with your mortgage and protect your home.

Your Credit Score After Chapter 13

Yet another benefit of Chapter 13 is that the effects on your credit report and score are less severe than in Chapter 7. There are two factors to consider when you ask what will happen to your credit after Chapter 13.

  1. Your Credit Score: This is a number that reflects your credit behavior and the likelihood that you will make payments on a loan. When you file Chapter 13, your credit score could drop up to 200 points or more. 
  2. Your Credit Report: There is a file kept by credit bureaus, which is the credit report where personal financial information is tracked. Your credit score will be part of your credit report. 

When you file for Chapter 13 bankruptcy, the case will remain part of your credit report for 7 years after the date you file your petition. For comparison purposes, the duration is 10 years with Chapter 7.

Steps in the Bankruptcy Process

There are multiple stages to a Chapter 13 case, including preparations, initial filings, and concluding the case. At each phase, you must meet the legal requirements under the rules. You can ensure a smooth process when you retain an Arizona bankruptcy lawyer for assistance with:

  • Arranging the credit counselling course that you must complete within 180 days before filing for bankruptcy;
  • Reviewing and organizing your financial documents;
  • Preparing the bankruptcy petition, along with all schedules;
  • Helping you develop the debt repayment plan;
  • Attending the creditors’ meeting with you, where creditors may ask about your petition; and,
  • Obtaining the final bankruptcy discharge order.

Trust a Chapter 13 Bankruptcy Attorney in Arizona to Support You

It is helpful to review some information on what will happen to your credit score after filing Chapter 13 in Arizona, but you will need additional details to determine the right fit for resolving your debt. For more information on the financial impacts and benefits of bankruptcy, please contact DebtBusters. You can reach an Arizona Chapter 13 lawyer by calling (866) 223-4395 or checking out our website. We are happy to set up a no-cost consultation at our offices in Scottsdale, AZ.

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