In most cases, a Chapter 13 filing stays on a credit report for seven years. That’s substantially less time than a Chapter 7, because in a Chapter 13, debtors repay all their delinquent secured debts, such as past-due mortgage payments. Most Chapter 13 debtors also repay some of their medical bills and other unsecured debts.

Chapter 13 Can Help You Begin to Repair Your Credit in Athens, GA

Bankruptcy debtors are right to be concerned about their credit reports. In most cases, your credit score determines more than your interest rate for a secured loan or your eligibility for a credit card. Some states allow insurance companies to use credit scores to assess risk. The lower your score, the more likely you are to file a false claim, at least theoretically. Furthermore, employers and landlords routinely use credit scores to make job and leasing decisions.

Why Bankruptcy Doesn’t Ruin Your Credit in Athens, GA

A persistent myth about bankruptcy is that a bankruptcy filing “ruins” your credit. This myth is untrue. First, if you are considering bankruptcy, your credit score is probably quite low already, because it is riddled with late payments and other negative information. Second, the overall effect of bankruptcy is often minimal. Third, if you take full advantage of bankruptcy’s fresh start, you can quickly erase the negative effects.

An Athens bankruptcy lawyer does much more than file paperwork. Only a lawyer can evaluate your financial situation and give you solid advice as to which form of bankruptcy is best. Then, a bankruptcy lawyer stands with you throughout the process, and helps you put credit problems behind you.

The Benefits of Bankruptcy in Athens, GA

Since Chapter 13 does not stay on your credit record very long, and since its effect on your score is rather minimal, do not let bankruptcy-phobia, or an unnatural and irrational fear of bankruptcy, prevent you from reaching out to an Athens bankruptcy lawyer. If nothing else, an attorney can at least fill you in on all the benefits of bankruptcy, so you make decisions based on evidence instead of myths. The Automatic Stay, protected repayment period, and debt discharge are the three biggest pluses of bankruptcy.

The moment debtors file their voluntary petitions, Section 362 of the Bankruptcy Code immediately prohibits most forms of adverse creditor actions, including:

• Foreclosure,
• Wage garnishment,
• Repossession,
• Collection lawsuits, and
• Eviction (in most cases).

Technically, civil judges also have the power to stop such adverse actions. But they only intervene if there is clear evidence of lender fraud or other wrongdoing. Most people have financial problems because of job loss, divorce, or something else unrelated to fraud. So, bankruptcy is usually the only way to stop aggressive creditor harassment.

Other Effects of the Automatic Stay in Athens, GA

Occasionally, the Automatic Stay has a more limited effect. These occasions usually involve prior bankruptcy filings in the last six months.

However, in almost every Chapter 13, the Automatic Stay remains in full effect for up to five years. During this time, debtors make income-based payments which erase secured debt delinquency. As long as the monthly debt consolidation payment timely takes care of all necessary obligations, creditors must wait in line for their money, because it’s almost impossible to bypass the Stay.

Incidentally, the Stay does more than freeze adverse action. The Automatic Stay prohibits creditors from communicating with debtors. So, creditors cannot pressure debtors to pay more money or pay it faster.

This part of the Stay sometimes has some unintended consequences. Many creditors stop automatic debit payment arrangements. They might stop sending statements as well. You are still financially responsible for current charges.

When the judge closes the bankruptcy case, the judge also discharges most unsecured debts, such as credit cards and medical bills. This discharge allows families to take better advantage of their fresh starts.

What Is Discharge in Athens, GA?

Discharge eliminates the legal requirement to pay a debt, but not the debt itself. Assume Alex owes money to Dr. Z, and Alex files bankruptcy. Medical bills are usually dischargeable debts, so more than likely, Alex won’t have to pay the bill. But Dr. Z can still refuse to treat Alex until the obligation is paid or an Athens bankruptcy lawyer makes other arrangements.

What to Expect in an Athens Chapter 13 Bankruptcy in Georgia

Before we get to the interplay between Chapter 13 and your credit score, let’s take a few moments to look at Chapter 13 procedure. As mentioned, some people have an irrational fear of bankruptcy. That’s partially because they do not know what to expect. People naturally fear the unknown.

Will I Qualify for Chapter 13 Bankruptcy Considering the Debt Ceiling in Athens, GA?

Although a debt ceiling applies, most people qualify for Chapter 13 bankruptcy. You must have less than $1.4 million in secured debts and $400,000 in unsecured debts. There are some other qualifications as well. Some of them are informal. For example, debtors must have sufficient disposable monthly income to make the aforementioned monthly debt consolidation payment.

At a meeting with the trustee, which usually happens about six weeks after petitioners file paperwork, the trustee confirms the debtor’s identity and examines any bankruptcy fraud red flags. The trustee has the right to examine documents, such as a Social Security card and recent tax returns, to do these things.

If the trustee approves the repayment plan, most judges do not require hearings to confirm the plan. Trustees almost always issue such approval, as long as the plan meets minimum legal requirements.

At that point, in many cases, as long as debtors make their payments on time, that’s pretty much it. Sometimes, trustees or creditors contest property exemptions or some other technical matters. Additionally, an Athens bankruptcy lawyer can often unlock some additional benefits of bankruptcy.

What Is Lien Stripping in Athens, GA?

Lien stripping is a good example. Assume Florence owes $150,000 on a house that’s worth $150k. She also has a $25,000 HELOC (Home Equity Line of Credit). Her home’s value is not high enough to secure both loans. Therefore, an Athens bankruptcy lawyer could reclassify her HELOC as a dischargeable unsecured debt.

How Bankruptcy Affects Your Credit Score

In general, the higher your score is, the more points you lose when you file bankruptcy. So, if your score is above 750, you’ll probably lose at least 200 points. But as mentioned above, most people don’t have credit scores anywhere near that high when they file bankruptcy. If your score is around 650, which is a pretty good possibility, a bankruptcy filing could reduce your score by about 150 points. In other words, when you file bankruptcy, your score goes from bad to worse. That’s not exactly the end of the world.

Why a Credit Score Drop Only Has to Be Temporary in Georgia

By way of comparison, a foreclosure could drop your score by as much as 160 points. Foreclosure, repossessions, and other such events indicate that the debtor stuck his/her head in the sand. Banks hate that kind of behavior even worse than they hate people who file bankruptcy. After all, if you file bankruptcy, especially if you file a repayment plan bankruptcy, at least you did something.

Additionally, a credit score decline is a lot like a stock market decline. If you stay the course, you can quickly make up the losses. More on that below.

How Long Does Chapter 13 Stay on Your Credit Report?

The legal “bankruptcy” entry stays at the top of your credit report for seven years. Note that the clock starts running when you file. So, if your Chapter 13 lasts five years, when the judge discharges it, you only have two more years to go. At that point, the entry might fall off your credit report before you need to buy new underwear.

Individual accounts, such as credit cards, also have bankruptcy notes, such as “discharged in bankruptcy.” These notes could also drag down your score, at least by a point or two. Any time the b-word appears on your report, FICO and other algorithms usually deduct points.

Try Negotiating

Pretty much everything is negotiable in financial affairs. That means not only buying and selling prices, but also notes on credit scores. An Athens bankruptcy lawyer can often convince lenders to change the way they report these accounts. Frequently, the creditor is happy to oblige if the debtor pays a small portion of the obligation.

Adding new information is one of the best ways to raise your credit score. Many debtors acquire credit cards after their cases end. Charge something every month, pay off the balance every month, and watch your credit score improve every month.

What Is Secure Debt in Athens, Georgia?

New secured debt has a similar effect. Our Athens bankruptcy lawyers have professional partnerships with lenders who work with bad credit borrowers. So, buying a car or even a house shortly after bankruptcy is a real possibility. Your buying choices might be limited, and you might pay a higher interest rate than other borrowers, but the bank will say “yes.”

Keeping Up With Your Chapter 13 Bankruptcy Payments in Athens, GA

Finally, and perhaps most importantly, stay current on the obligations you have now, come hell or high water. Ten or fifteen months of recent on-time payments says a lot more about your current creditworthiness than a bankruptcy which is several years old and, for the most part, was not your fault.

Some Post-Bankruptcy Success Stories in Athens, GA

Since Congress created the modern Bankruptcy Code, countless individuals, families, and organizations have used bankruptcy’s benefits as a springboard to a better financial future. We’ve collected a few examples below.

Bankruptcy eliminates debt, and the pressures which come with debt, and gives you a fresh start. Although an Athens bankruptcy lawyer can help, as outlined above, what you do with that fresh start is entirely up to you. Some people squander their fresh starts and wind up in bankruptcy court again. A few are able to turn lemons into lemonade. Most people are somewhere in between.

Henry Ford

The world remembers Ford as an automotive industry titan who pioneered improvements we take for granted today, like assembly line production and a five-day workweek. The world does not remember that, before his big breakthrough with the Model T, Ford declared bankruptcy twice. Ford’s constant tinkering, and his lackluster financial ability, torpedoed both the Detroit Automobile Company and the Henry Ford Company.

Bankruptcy taught Ford some tough lessons. He learned to leave well enough alone, at least in most cases, and also learned he needed a partner who understood dollars and cents. In the end, Ford’s determination and vision made his prior bankruptcies a historical footnote. Your determination and vision, along with an Athens bankruptcy lawyer’s help, can do the same thing.

General Motors

Fast-forward about a hundred years to another automotive giant that encountered a very large bump in the road. In 2009, this struggling automaker filed bankruptcy, mostly because of the Great Recession which was raging at the time.

Bankruptcy gave General Motors a chance to pause and reorganize. Additionally, bankruptcy gave the company a chance to renegotiate some unfavorable supply and other contracts. As a result, less than two years later, its profits had roughly doubled. Chapter 13 gives these same opportunities to individuals like you.

Walt Disney

Disney started his first animation company in 1920. At first, the company made money. Then, a series of misfortunes, none of which were Disney’s fault, forced that company into bankruptcy. The same year the judge discharged Disney’s bankruptcy, he started a new company. Free from debt and creditor harassment, Disney was free to focus his energy on his business. The result was Mickey Mouse in 1928, and the landmark animated feature Snow White and the Seven Dwarves in 1938.

Bankruptcy gave Disney a fresh start, and he made the most of it. An Athens bankruptcy lawyer gives you the chance to write your own success story.

Consult an Experienced Bankruptcy Lawyer in Athens About Your Chapter 13 Options in Georgia

If you’re asking how long Chapter 13 stays on your credit, you’re ready to get more information. For a free consultation with an experienced bankruptcy lawyer in Athens, contact Morgan & Morgan, Attorneys at Law, P.C. The sooner you reach out to us, the sooner we start working for you.

 

 

This original article was published on January 9, 2020 and updated on June 15, 2021.