Which Chapter Of Bankruptcy Is Better For My Credit Score?
The US code says that the filing of a Chapter 7 bankruptcy can remain on your credit report for up to ten years. The filing of a Chapter 13 can remain on your credit report for up to seven years. It drops off sooner if you file for a Chapter 13. Also the credit reporting agencies are more generous to folks who file for a Chapter 13, because you can argue it when you go to get more credit, “I paid my creditors” even if you really only paid them up to one percent. The filing of a Chapter 13 indicates willingness or maybe it was by necessity that you have filed, and you still paid your creditors, but it just looks good on your credit score, it looks better to people that you have paid your creditors. In a Chapter 7 obviously conversely, you did not pay them, you are out of all your debt, so you are penalized for ten years.
The other thing that I find that unlike twenty years ago, people are not receiving one-hundred point hits for filing a bankruptcy; they are more like getting thirty to fifty point hits. I have seen people who are in the low 500s, file Chapter 7, and their credit score actually increased right after they filed. The credit reporting agencies gave them the benefit that they took some initiative to solve their credit issues, and the same thing with people who have very high credit scores. If they have not shown any thirty or ninety days late before they filed, the credit reporting agencies actually give them credit for having filing the bankruptcy. They will not reduce their credit score very far. I have seen people whose score was at 760, and after he filed Chapter 7, he went to a 763.
Can Filing For A Chapter 13 Stop Creditor Harassment & Collection Actions?
Filing a bankruptcy under 362 of the Bankruptcy Code provides an automatic stay. That stay prevents creditors from doing anything. They cannot call or write you, they cannot sue or foreclose on you. They have to stop all activity, and they cannot have any contact with you except through your attorney. They do not actually try to contact your attorney for the collection of the debt, but rather they have an opportunity to file a proof of claim. A proof of claim is filed in a Chapter 13 allowing them to get paid as long as the proof of claim is not objectionable or objected to by either the trustee, the debtor or the debtor’s counsel files objections to proofs of claim. So they can collect the debt simply by filing a proof of claim.
Can Creditors Resume Collection Actions If Payments Are Missed Under The Chapter 13 Repayment Plan?
No, just because someone has missed their payment does not mean they can immediately begin collection activities. They are entitled to file something called the Motion to lift the automatic stay. The automatic stay is that provision of the code that prevents them from doing anything and that answers your next question, “What is an automatic stay”, it just keeps creditors at bay, and they are not allowed to do anything. If they do want to do something, they would file a motion, and that is a motion to lift the automatic stay. Sometimes those are granted, and sometimes they are not. They are not usually granted simply because a debtor missed a scheduled payment.
Missing a scheduled payment does not have a direct effect on that creditor. The creditors that do file motions to lift the stay are creditors who are usually taken care of outside the plan. For instance, a house or a car payment, that is not inside the plan. If the debtor misses that payment, then they will file a motion to lift the stay and it may very well be granted.
What Is The Role Of A Bankruptcy Attorney In A Chapter 13 Bankruptcy?
I make sure you have all your debts and assets listed. I make sure that the debtor is being honest, and we make sure that they have given us the proper social security number to file. I cannot tell you how often I have to emphasize that to my staff, because we have filed bankruptcies with the wrong social security numbers. The role of the bankruptcy attorney is to help the debtor devise a plan of repayment that comports with what their assets, liabilities, income, and expenses are. There are so many different ways that a Chapter 13 repayment plan can be fashioned.
It usually is not so much art as it is just that every case is a snowflake. People’s circumstances dictate what the plan is going to look like if Chapter 13 trustees agree with that. They sometimes disagree with our plans and say we did it wrong, maybe we are going out on a limb in favor of our clients and against creditors and the trustee’s job is to kind of hurl us back in and make sure that the creditors are treated more fairly than we have decided to treat them.
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