Probably not, and that’s the unfortunate truth of our credit system today. Many of our prospective clients come into our office with a need and desire to ‘do the right thing’, which translates into making an effort to pay back their debts in a Ch.13 Plan. They are also concurrently hoping to gain some recognition through a better credit score, for having made the payments versus choosing a ‘straight’ Ch. 7 debt liquidation. Somewhat ironically, the opposite is true. That is, for purposes of rehabilitating one’s credit score, oftentimes a straight Ch. 7 is the better choice. How can this be? Speed is the primary reason. Both Ch. 13 and Ch. 7 are bankruptcies, plain and simple, and both are reported as such for 10 years, on the credit report. For purposes of rehabilitating credit, what a new creditor wants to know is whether your Bankruptcy is finished. The legal term is ‘discharged’, but that’s the focus, ‘Is the bankruptcy over with or done?’. A typical Ch. 7 case is in existence for about 4 month, and a typical Ch. 13 case is in existence from 3 to 5 years. It can easily be determined, then, that the sheer length of the Ch. 13 case vs Ch. 7, makes the Ch. 7 a better choice for purposes of re-establishing credit. A Ch. 7 Discharge is simply much faster to obtain. There are other more subtle reasons that Ch. 7 is ‘better’, as well. For instance, one may only obtain a discharge of debt in Ch. 7 now, each 8 years (the prior law was each 6 years). New creditors know this about debtors coming out of Ch. 7. They also know that the amount of debt owing is now $0.00 or at least substantially reduced, and they know the debtors are ‘minimum payment acclimated’, meaning, debtors know how to make minimum payments on outstanding balances. And, the Ch. 7 Debtor cannot file Ch. 7 again for 8 years. From a bank’s perspective then, a debtor coming out of Ch. 7 is an easy target for new business, and credit card solicitations abound, post discharge. So, for credit rehabilitation, the important thing is to obtain a discharge, and that discharge happens to occur much faster in Ch. 7 vs. Ch. 13.

John C. Colwell
Attorney at Law
Debt Relief Legal Clinic
www.debtclinic.com
Member, Board of Directors, NACBA
www.nacba.org