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Chapter 7 bankruptcy engages certain credit score reporting rules

A Chapter 7 bankruptcy filed in Washington state forgives all unsecured debt, and there is no payment plan. It is filed and discharged typically within three to four months. The record of a Chapter 7 bankruptcy can stay on one's credit record for up to 10 years. However, the individual debts that are discharged are removed after seven years.

Discharged accounts may stop appearing on one's credit record in less than seven years, but there is no way to assure that outcome. Generally, an accelerated self-restorative process may be triggered when the individual is paying on credit accounts post-bankruptcy on time for an extended number of months. That is why it is always helpful to keep one's payments current on a car loan or house loan that was taken out and paid regularly for some time before the bankruptcy filing.

The law allows an individual or married couple who have filed Chapter 7 to keep their home and car loans. This can be done if the loan on the asset is current, and if there is not more equity in the asset than is allowed by the applicable exemption. Chapter 13 would have to be filed, for example, when the home mortgage payments are up-to-date but there is a balance of only $10,000 due on the mortgage of a home that is worth $100,000.

Although the equity available in Washington for a married couple toward a marital residence is substantial, it is less than the amount in the foregoing example. If too much equity in an asset such as real estate compels the consumer to file a Chapter 13, a comparable amount of unsecured debt can still be discharged in the bankruptcy, but it will take longer for that outcome. Thus, a Chapter 13 is a payment plan that extends for 36 to 60 months. Unsecured debts can usually be discharged through a plan that proposes to pay a small percentage of the amount due, resulting in the comparable advantage of eliminating a large load of unsecured debt in a Chapter 13 also.

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