Is Chapter 7 Or Chapter 13 Bankruptcy Better On Your Credit?

My personal opinion is that a Chapter 7 is better on your credit than Chapter 13. I’m going to explain why. In Chapter 13 you do repay creditors over a period of time whereas in a Chapter 7, you don’t. A lot of people mistake that small payment plan for a benefit on your credit report but frankly I don’t think that’s the case and I’ll tell you why. Chapter 7 is over quickly. In my district in California, it takes about 5 or 6 months to fully complete a Chapter 7 case as long as there are no issues or problems or things that delay the case. So from when you file to when you get your discharge, it’s about 5 to 6 months. As soon as that case closes, at the end of your 6 months, your bankruptcy can start ageing on your credit report. It can start getting older and older. The event has finished, it is closed.

All your debt has been wiped out and eliminated. You have zero balances or you should have zero balances on all your trade lines from all your creditors and that bankruptcy just gets older and older every month that goes by. As it becomes older it becomes less significant and has less of an impact on your credit score. Generally that’s how credit works. Older things have less impact than newer things. As the bankruptcy ages, it has less of an impact and therefore your credit recovers from bankruptcy and from all that debt you had a lot faster. In the alternative, Chapter 13 is a 5 year repayment plan. You repay creditors over 5 years. It can be a small amount, you can set up a plan where you are only paying 2% or something like that but the point is you are in it for 5 years.

You have an open bankruptcy for 5 years and only at the end of those 5 years does the bankruptcy actually close and hopefully, you get a discharge and it can start ageing. So the Chapter 13 bankruptcy won’t start ageing for 5 years until it’s done. Now if you compare the 2, apples to apples, Chapter 7 has been ageing for four and a half years at the time the Chapter 13 would have closed if you put them side by side like a horse race. So if you did a Chapter 7, got a discharge and aged it for four and a half years, you would have substantially better credit at that point than if you did a Chapter 13, paid creditors for 5 years and ageing only started that month.

That’s why I think, in my personal opinion Chapter 7 is much better for your credit than a Chapter 13 because it’s over a lot faster and it can start ageing a lot faster. A lot of people have different opinions about that. They think doing a payment plan is much better than not doing a payment plan. I don’t think that’s the case. I think on a credit report, it’s reflected roughly the same. So I’m much more in favor of just getting it over with, quick and easy and start ageing it as quickly as you possibly can and just moving on, getting your fresh start and just thinking about the future.

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