Chapter 13 Bankruptcy Effect On Credit

Creditors would rarely agree to terms provided in reorganization plans voluntarily. The Court necessarily is vested with authority to enforce reasonable plans. Completion of the plan is considered full performance and all debts are considered paid in full. But, how does Chapter 13 effect credit after bankruptcy? The answer may surprise you. Creditors always promote Chapter 13 to receive payments, but after discharge, penalize debtors the same as if discharging all debts through Chapter 7.

From a creditor's viewpoint, Chapter 13 bankruptcy is a far more profitable form of federal debt relief. From a debtor's viewpoint, little justification can be made for struggling for 3 to 5 years, with no disposable income, for the peace of mind resulting from partial payments. For debtors who qualify for quick liquidation cases, the effect of discharge is nearly identical under all cases, and credit availability and the subsequent improvement upon credit scores begins after the case is complete.