Life after Chapter 13 bankruptcy is all about getting on your feet again. While you can typically keep all of your assets in a Chapter 13, you'll have to pay back your creditors at least some of what you owe, resulting in a slimmed-down lifestyle. Once you get your discharge, you may have to live on a cash basis until you can rebuild your credit. While the completion of the process may come as a great relief, life after Chapter 13 can still be full of challenges.
Credit After Bankruptcy
Bankruptcy of any kind, including Chapter 13, is devastating for your credit. Once you've filed Chapter 13 bankruptcy, it will show on your credit report for seven years. During that time, anyone who runs your credit report will see your bankruptcy, which will generally make them less likely to offer you credit. Your score will also likely remain low for years, although it will tend to improve over time. If you can find a lender willing to finance your car or home purchase, or who will issue you a credit card, you're likely to face high interest rates, making repayment more difficult.
The great paradox of recovering from bankruptcy is that you can't improve your credit until you get credit, which can be hard to do. One way to begin rebuilding your credit is to get a secured credit card, in which you put down a deposit in exchange for a limited credit line. After six or 12 months of responsible usage, you may qualify for a more traditional credit card. The longer you can show responsible use of credit, the more likely you are to improve your score and get credit offers with lower interest rates.
Freedom From Payments
The best part about life after a Chapter 13 is that you're likely to have extra money in your pocket every month. Under the terms of a Chapter 13 bankruptcy, you're required to pay your creditors a certain amount every month for either three or five years, depending on your income at the time you file. After you get a discharge, your payment plan is finished. The money you had reserved in your budget to pay back creditors can now be spent on anything you would like.
You're also free from having to ask permission for certain purchases after you get your discharge. During your payment plan, purchases that can be considered extravagant or discretionary, such as buying a boat or a trip around the world, have to be approved by the court. Typically, such large purchases are prohibited if the court determines they'll impair your ability to maintain your payment plan. Once your plan is over, you can spend your money any way you'd like.
A natural reaction after enduring years of Chapter 13 bankruptcy payments is to want to spend. To avoid getting into the same trouble that made you file for bankruptcy in the first place, you'll have to remain disciplined with your spending. The good news is that after Chapter 13, you'll already have a blueprint for how to stay within your budget. Your Chapter 13 payment plan forced you to allocate money to your needs rather than to extravagant purchases. If you can keep to that lifestyle, you won't have to worry about falling into debt again.
John Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to writing thousands of articles for various online publications, he has published five educational books for young adults.