Which Chapter Of Bankruptcy Is Better For My Credit Score?
The law is that any negative information can stay on your credit report for up to ten years. The filing of a Chapter 13 shows the world that you paid your debts; doesn’t matter if it was only one percent in a Chapter 13. Also, the credit reporting agencies are more generous in their scoring to folks who file for a Chapter 13. The issue is debt to income, and any bankruptcy improves your debt to income ratio, effectuating an increase in your score, even if there is an initial negative hit. When you go to get more credit, you can say, “I paid my creditors” even if you really only paid them one percent. Psychologically, the filing of a Chapter 13 indicates a willingness to pay creditors. And even if it was by necessity that you have filed, you still paid your creditors some or all of the debt. That looks better for your credit score. It also looks better to other people that you have paid your creditors. Conversely, in a Chapter 7 you obviously did not pay them. Your credit report is required by Federal law to be accurate, so after you file each debt entry should say something like, “Included in BK”.
We find that unlike twenty years ago, people are not receiving 100 point negative hits for filing a bankruptcy. There is a “sweet spot” between a 600 score and a 700 score where people are getting a ten to a fifty point negative hit. But that doesn’t last too long, because of debt to income ratio giving them a boost. We have seen many people who are in the low 500’s who filed 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. We see the same thing with people who are above a 700 – no negative hit at all! If they have not shown any 30, 60 or 90 day late pays before they filed, the credit reporting agency does not penalize them for having filed the bankruptcy. They will not reduce their credit score very far. We even had a person whose score was at 760 and after he filed Chapter 7 he went to a 763. Recently, we had a lady whose score was a 435 and she called us three weeks after filing to announce to us that her score is now 575! She is so happy! Three weeks after filing her case, her bank gave her an unsecured credit card with a $400 limit, and her kitchen table was covered with envelopes from various automobile dealers that proclaimed on the outside, “Bankruptcy – No Problem! Buy your next car from us.”
Can Filing For A Chapter 13 Stop Creditor Harassment & Collection Actions?
Section 362 of the Bankruptcy Code provides an “automatic stay.” That automatic stay prevents creditors from doing anything. They can’t call you or write you. They cannot sue or foreclose on you. They have to stop all collections activity. 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 may 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. Usually, the trustee or the debtor through the debtor’s counsel files objections to proofs of claim. So, creditors can only get paid 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 plan payment does not mean that creditors can immediately begin collection activities. They are entitled to file something called a Motion to lift the automatic stay. It may also be called a “Motion for Relief” from the stay. Remember, the automatic stay is that provision of the Code that prevents creditors from doing anything to collect a debt. If creditors do want to do something, they can file 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 usually creditors that are taken care of (paid) outside of the Chapter 13 plan. For instance, a house or a car payment that is not inside the plan. If the debtor misses that payment, then the creditor can and usually will file a motion to lift the stay and it may very well be granted, unless the debtor figures out a way to come current with that creditor.
What Is The Role Of A Bankruptcy Attorney In A Chapter 13 Bankruptcy?
We make sure that you have all your debts and assets listed. We make sure that the debtor is being honest, and we make sure that they have given us the proper social security number to file. We cannot tell you how often we have to emphasize that to our staff, because we have filed three bankruptcies with the wrong social security numbers, one twenty years ago, one ten years ago, and one a month ago! The big role of the bankruptcy attorney is to help the debtor devise a plan of repayment that comports with the Code and what their assets, liabilities, income, and expenses are. There are so many different ways that a Chapter 13 repayment plan can be fashioned, that no two cases are alike. Every case is a snowflake.
People’s circumstances dictate what the plan is going to look like. Our job is to get the Chapter 13 trustee to agree with the plan. They sometimes disagree with our plans and say we did it wrong, filing an “Objection to Confirmation” or a “Motion to Dismiss”. Maybe we are going out on a limb in favor of our clients and against creditors. The trustee’s job is to kind of reel us back in and make sure that the creditors are treated more fairly than we have decided to treat them.
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