A common question people have before filing for bankruptcy is whether they can keep any of their credit cards. In most cases, the answer is usually no. However, what happens to your credit cards depends on several factors, including the type of bankruptcy you file and the credit card issuer’s policies.
Understanding how credit cards are handled during and after bankruptcy can help you know what to expect and reduce some of the uncertainty about rebuilding credit.
What Happens to Credit Cards During Bankruptcy?
In most bankruptcy cases, you will not be able to keep your current credit cards, especially if the account has a balance when you file.
Bankruptcy law requires you to disclose all debts. Credit cards with balances are considered unsecured debts. These debts are typically discharged in Chapter 7 bankruptcy or repaid in part through a Chapter 13 repayment plan.
Once the credit card company receives notice of your bankruptcy filing, it will usually close the account. This can happen even if you have always made payments on time or were current on the account.
What If the Credit Card Has a Zero Balance?
A credit card with a zero balance may not technically be a debt, but that does not mean the account will stay open.
Credit card companies may learn about bankruptcy filings through public court records or credit reporting agencies. Once the issuer is notified, many choose to close the account as a matter of policy, even if there is no balance and even if you never missed a payment.
Can I Leave a Credit Card Out of My Bankruptcy Filing?
No. You are legally required to list all debts and accounts in your bankruptcy paperwork.
Some people wonder if they can leave one credit card out of the filing so they can keep using it. This is not allowed. Bankruptcy requires full and honest disclosure, and failing to include an account can create serious problems with your case.
Rebuilding Credit After Bankruptcy
Although bankruptcy usually means losing access to your current credit cards, it does not mean you will be unable to get credit forever. Many people are able to begin rebuilding their credit within a few months after discharge.
Secured credit cards are one common option. These cards require a cash deposit as collateral, function like traditional credit cards, and report to the credit bureaus.
When used responsibly, secured cards can help rebuild credit over time. Keeping balances low and making payments on time can eventually help pave the way toward unsecured credit cards again.
Bankruptcy Can Be a Fresh Financial Start
Filing for bankruptcy usually means letting go of existing credit cards, but it can also provide a fresh financial start. With time, discipline, and smart credit use, many people are able to rebuild their credit and regain access to credit cards and other financial tools.
If you have any questions about this topic or any bankruptcy matter, please call Bononi & Company at 724-832-2499.