What Happens After a Chapter 13 Bankruptcy?

There’s much to consider following the closure of a Chapter 13 bankruptcy proceeding and repayment plan. You may be able to pay off more debt than you think, but your credit score will take a significant hit as a result. 

A lot of time and attention is paid towards the filing and process of a Chapter 13 bankruptcy, but what happens after the case is completed? How you react, respond, and recover from this proceeding is as important as the petition itself.

Cleared Debts

Once your Chapter 13 proceeding closes, and you’ve finished your repayment plan, you’ll get a discharge order that clears the remaining balance of qualifying debt. This debt includes most kinds of “non-priority unsecured debts,” including credit cards, medical bills, personal loans not secured by collateral, and more.

There are also specific debts that can be discharged through a Chapter 13 case but are not able to be discharged in a Chapter 7 case:

  • Willful and malicious property damage: debts related to damage you may have caused someone else’s property with the intent to cause that damage.
  • Debts incurred to pay non-dischargeable taxes: This typically includes taxes paid by credit card.
  • Qualifying divorce or separation property settlements: Alimony and child support payments are always non-dischargeable, but additional debts you’ve been assigned through a divorce or separation may be dischargeable through Chapter 13, such as property or debt settlements.
  • Government fines, penalties, and forfeitures: Obligations you owe to a government entity can be discharged in Chapter 13, but you’ll still owe restitution or criminal fines incurred in sentencing.
  • Certain other qualifying debts: There are a variety of other dischargeable instances including, but not limited to: debt related to a wrongful act against a bank, court fees incurred by a prisoner who files an official court document, and debts arising from securities law violations.

About Your Credit Score

After a Chapter 13 bankruptcy, one of the chief concerns is the hit on your credit score and your ability to rebuild. It’s worth checking your score about three months after your discharge, then again a year after that. Too many requests will negatively affect your credit.

Developing sensible financial habits can go a long way towards rebuilding your credit score, which could take a hit of as much as 200 points from the filing of the bankruptcy case. A bankruptcy can stay on your credit report for up to 10 years, so that could play a role in future loan applications over the decade following.

Future Planning

One of the best things you can do following bankruptcy is to become more literate in personal finance. Developing personal strategies to save money, budget, and build an emergency fund can help prevent future bankruptcies. Just because you’ve gone through a Chapter 13 bankruptcy doesn’t mean that you can’t have credit. You can use the lessons learned through working with a qualified bankruptcy attorney to build a plan to apply for, keep, and maintain quality credit (through cards or otherwise) in the future.

This planning can be overwhelming and the help of a bankruptcy attorney can make it a smoother and easier process. Call Natural State Law at (501) 916-2878 to discuss making a plan for your personal success following a Chapter 13 bankruptcy.