Chapter 7 and Chapter 13 bankruptcy will stay on your credit report for the same amount of time; about ten years. Although they both have the same effect on your credit score, a particular creditor reviewing your report to decide whether to lend you money might view one chapter more favorably than the other. In particular, a creditor might be more willing to lend to you if you filed for Chapter 13 rather than Chapter 7.
(To learn more about things that affect your credit report and score, and ways to rebuild credit, see our Credit Repair topic area.)
Your credit report is important if you want to borrow money – the potential lender will review the report to determine if lending to you would be risky. Those with good credit are a low risk and are more likely to get loans with good terms; those with poor credit are high risk and may have more difficulty.
These lenders will look at your credit score and your overall credit history when deciding whether to lend to you. Your credit score is based on a multitude of factors, including the amount of available credit you have, the ratio of your balances due to your credit limits, your total amount of debt and any judgments or bankruptcies you have on record.
Chapter 7 and Chapter 13 bankruptcy both affect your credit score the same – having a Chapter 13 bankruptcy on your credit report will not be any better for your score than a Chapter 7. However, the individual reviewing your report will look at more than your score.
A Chapter 13 bankruptcy involves repaying some or all of your debt over a three- to- five-year period, while a Chapter 7 bankruptcy involves wiping out most of your debts without paying them back.
Both Chapter 7 and Chapter 13 theoretically leave you in a good position to take on new debt, as they both free you from the burden of old debts and give you a fresh start. Beyond that, if you have a Chapter 13 on your credit report, a lender looking at your report may see it as a responsible way to handle your debt, because you made a good faith effort to repay your debts despite your financial hardship. In that way, a Chapter 13 may be better for your credit than a Chapter 7.
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