What Happens After Chapter 13 Bankruptcy?

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    Features

    • Chapter 13 is commonly known as a wage earners bankruptcy. In a Chapter 13 bankruptcy case, the
      income of the debtor is used to pay creditors. There are several reasons why a person would file for bankruptcy protection under this chapter of the federal bankruptcy code. He may have non-exempt property, such as a home, that he wishes to prevent from being liquidated to repay creditors. He may be forced to file for Chapter 13 bankruptcy under the presumption of abuse provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).

    During the Plan

    • After the debt payment plan is approved by the court, the debtor is responsible for implementing the plan. The debtor must make regular payments to the bankruptcy trustee and is prevented from incurring more debt without the permission of the trustee.

    The Discharge

    • After the debtor makes all the payments to the trustee under the repayment plan, the debtor may obtain a discharge of her remaining debt. No creditor may attempt to collect a discharged debt. Although the bankruptcy will remain on your credit report, it becomes less significant of a factor with each passing year.

    Credit Effects

    • Under the BAPCPA, a Chapter 13 bankruptcy will remain on a credit report for seven years. After ending a Chapter 13 bankruptcy, a person can take steps to rebuild her credit quickly. This includes taking out a credit card with the small limits that you may qualify for after bankruptcy and paying them off in full each month. Never use more than 30 percent of the credit limit. Using credit sparingly can increase a person's credit score.

    Significance

    • A bankruptcy is not a favorable thing to have on a credit report. Creditors generally look more favorably on a Chapter 13 bankruptcy than they do on a Chapter 7 bankruptcy. Under a Chapter 13 bankruptcy, a debtor has made a good-faith effort to repay creditors.

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