Filing for Chapter 13 bankruptcy allows you to reduce the amount of debt you owe and still retain certain assets. Despite these benefits, you may still feel unsure about pursuing this route out of fear of what it will do to your credit.
The good news is that the effects on your credit will not last forever, and the consequences (both good and bad) of Chapter 13 outweigh the consequences of not declaring bankruptcy.
What happens to your credit after Chapter 13
Your credit score and limit will drop significantly, and the bankruptcy will remain on your financial record for seven years. This will make it harder to obtain loans and low-interest credit cards for a time, and the ones that are available to you may be risky options. However, remaining in debt and experiencing repossessions, lawsuits and other serious consequences will hurt your credit much more than bankruptcy will.
How to rebuild your credit after Chapter 13
The effects on your credit are not as bad as they may seem. You will be on a strict budget in order to fulfill the repayment plan of your Chapter 13. This teaches you to manage money and keeps you from acquiring additional debt. Simply making your payments on time and only spending on daily necessities will help you rebuild your credit faster. Another option is to open a secured credit card, which only allows you to charge as much as the deposit you made when obtaining the card. This puts you in control of your limit.
You may be eligible for loans in as little as 18 months, albeit with a higher interest rate. However, be very careful in your choice of lender, as there are some who like to trick bankruptcy filers into paying exorbitant fees. Having the legal guidance of an attorney can help you decide when it is time to borrow money again, how much and from whom.