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A Chapter 13 Bankruptcy Attorney Discusses the Effect of Bankruptcy on Your Credit

chapter 13 bankruptcy attorneyBankruptcy is a tool that allows people who are insolvent to seek protection from the court, to assist them in reorganizing their debt and finances. In exchange for the protection and debt reorganization (or forgiveness), bankruptcy may affect your credit which can impair your ability to secure mortgages, favorable interest rates, car loans, and many other debt tools. A Chapter 13 bankruptcy attorney from Alfred Abel Law Offices reviews the effects of bankruptcy and compares those against the benefits offered.

Types of Bankruptcy

The two most common types of bankruptcy for consumers are Chapter 7 and Chapter 13. Under Chapter 13, you can catch up on your mortgage and pay a fraction of other debt over a period of years, up to five years maximum.  A creditor that is paid a fraction of their debt during the case cannot force you to pay the balance after a successful chapter 13 case.  The client proposes a payment. If the plan is accepted, the debt is reorganized per the provisions in the payment plan, and you begin making payments. When the plan is rejected, you renegotiate new terms with the creditors and the bankruptcy trustee until you reach an acceptable plan.

A Chapter 13 bankruptcy attorney assists clients in preparing the payment plan and in supporting it before the bankruptcy court. You can avoid a repayment plan by filing for Chapter 7 bankruptcy. Under Chapter 7, the court will claim property in excess of what you are entitled to keep to pay part of your debts and forgive the rest, however, you must qualify based on the means test, and the impact on your credit.

Effect on Credit

Bankruptcy can affect your credit score, but in most cases there are already delinquencies, defaults or other damaging events that damage your credit, so the effect of a bankruptcy is not as severe as it might appear at first. Your credit score is used to determine your “credit worthiness” which determines the types of loans you can acquire, interest rates, and other financial issues. The higher your score, the better financing you can get.

Credit scores are determined by a variety of factors. The biggest factor, at 35 percent, is payment history. Bankruptcy is reflected in payment history, along with other payment delinquencies. Thus, a bankruptcy filing will damage your score as will any other delinquencies. However, 30 percent of your score is the total amount of debt you owe. Therefore, assuming your credit score has been/will be damaged due to delinquent payments, bankruptcy will allow you a fresh start and within a few years, your credit score could be much better than if you had allowed the delinquencies to continue.

Bankruptcy Bottom Line

Deciding to file for bankruptcy is often difficult for people. However, when creditors are calling daily, you are worried about losing your home, and you have a family to care for, you may find that bankruptcy is the right solution. The relief of having overwhelming debt reduced or reorganized into a manageable payment plan is a big benefit of bankruptcy. Creditors are ordered by the bankruptcy court to stop calling once you have filed and you can choose to start anew, rebuilding your credit and forming better money management practices. A Chapter 13 bankruptcy attorney can help you determine if this path is the one for you.

Call Alfred Abel Law Offices for a Knowledgeable Chapter 7 and Chapter 13 Bankruptcy Attorney

A Chapter 13 bankruptcy attorney from Alfred Abel Law Offices can assist you with all your bankruptcy questions and concerns, including its benefits, potential impact on your credit, and how long the effects will last. With over 35 years of experience, Alfred Abel can help you get the results you need and guide you through the entire bankruptcy process. Contact us today for more information.