If you’re considering filing for Chapter 13 bankruptcy, you may be wondering how it will affect your credit score. Here’s what you need to know.
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How long Chapter 13 bankruptcy stays on your credit report
Chapter 13 bankruptcy stays on your credit report for seven years from the date you file. That means if you file Chapter 13 today, it will be on your credit report until 2027. If you want to improve your credit score in the meantime, there are a few things you can do. Try to make all your payments on time, keep your balances low, and don’t open any new accounts. You can also talk to a credit counseling agency about ways to improve your credit score.
How to rebuild your credit after Chapter 13 bankruptcy
Filing for Chapter 13 bankruptcy gives you a chance to catch up on mortgage or car loan payments you’ve fallen behind on, and keep your property. But it also comes with a big downside: a hit to your credit score that can last for years.
Fortunately, there are steps you can take to rebuild your credit after Chapter 13 bankruptcy. And as time goes by, the negative impact of bankruptcy on your credit will lessen.
First, a little about how Chapter 13 bankruptcy works. Rather than liquidating your assets to pay creditors, as in Chapter 7 bankruptcy, in Chapter 13 you create a repayment plan. You make payments to a trustee who then disburses the money to creditors according to the terms of the plan. The typical repayment period is three to five years.
Once you’ve filed for Chapter 13 bankruptcy, the first thing you need to do is make all your required payments on time. That’s because timely payments are reported to the credit bureaus and help improve your credit score. If you miss a payment, not only will your score go down, but you could also lose the protection of the bankruptcy court and be at risk of having your case dismissed.
In addition to making timely payments, another way to help improve your credit score after Chapter 13 bankruptcy is to start using credit responsibly. That means using credit cards and other lines of credit wisely by keeping balances low and making payments on time. This will show creditors that you’re managing debt responsibly and help improve your credit score over time.
If you need help managing your finances after Chapter 13 bankruptcy, consider working with a nonprofit credit counseling agency like Money Management International (MMI). A certified financial counselor can work with you one-on-one to create a budget and develop a plan for paying down debt. Often, these services are offered free of charge or for a nominal fee. To find an MMI affiliate near you, visit www.moneymanagement.org/find-an-agency/.
How to get a mortgage after Chapter 13 bankruptcy
It is possible to qualify for a mortgage after Chapter 13 bankruptcy, but there are a few things you need to do first. You’ll need to get your bankruptcy discharge, make sure your credit score is high enough, and save up for a down payment.
Chapter 13 stays on your credit report for seven years from the date you file. This means that if you want to get a mortgage after Chapter 13, you’ll need to wait at least seven years. But waiting seven years isn’t necessarily going to guarantee you a mortgage. You also need to make sure your credit score is high enough.
The exact credit score needed for a mortgage after Chapter 13 will vary from lender to lender, but you’ll likely need a score of at least 620. The higher your score, the better your chances of qualifying for a mortgage and getting a lower interest rate.
In addition to having a high credit score, you’ll also need to save up for a down payment. The size of your down payment will depend on the type of mortgage you get, but most conventional loans require at least 20% down. If you don’t have 20% to put down, you may be able to get an FHA loan, which only requires 3.5% down.
If you want to get a mortgage after Chapter 13 bankruptcy, the best thing you can do is start working on your credit score and saving up for a down payment as soon as your bankruptcy is discharged. by making on-time payments and keeping your balances low, you can start rebuilding your credit right away. And the sooner you start saving for a down payment, the sooner you can buy a home of your own.