Credit Reporting and Chapter 13 Bankruptcy
Many debtors, feeling nervous about how a Chapter 13 bankruptcy will impact their credit rating in the three to five years they remain in the repayment plan, have question about how accounts will be reported to the credit reporting agencies.
Let’s take a look at a few facts to clear up any confusion:
- A debtor’s credit report is often worse BEFORE they file bankruptcy than afterwards. There is also the greatest potential for things to go wrong, such as a lawsuit, lien or other collection action taking place that can negatively impact a debtor’s credit report before they file bankruptcy than afterwards. In essence the debtor’s credit rating may actually improve after their bankruptcy filing.
- During a Chapter 13 bankruptcy the creditors are not required to report anything to the credit reporting agencies. Even though a debtor is making payments in their plan, those payments may not be reported to the credit reporting agencies.
- Some creditors will zero out the debtor’s balance after the bankruptcy filing; however this is not guaranteed. But whether or not a creditor zero’s out a debtor’s balance will not impact the fact that they cannot attempt to collect on the debt while the debtor is in bankruptcy.
- Generally speaking a debtor is not able to obtain new credit while in Chapter 13 bankruptcy without the permission of the bankruptcy trustee. Because of this their credit rating during bankruptcy is not as important as their credit rating after their bankruptcy discharge.
- Once a debtor has successfully completed their Chapter 13 bankruptcy repayment plan and the balance of their unsecured debts are discharge, their creditors are obligated to accurately report the credit balance as zero. If there is any debt that survives the Chapter 13 bankruptcy, those creditors are required to accurately report the balance and payments made to them after the bankruptcy. This might be the case for a mortgage, car note or student loans which survive the Chapter 13 bankruptcy.
Have Questions About Credit Reporting and Bankruptcy?
If you have any questions or concerns regarding a chapter 13 bankruptcy, feel free to contact us today to set up a free consultation.