Keeping Some Credit Cards Through Bankruptcy

When you file for Bankruptcy, what do you do if you want to keep some credit cards?  Hide them from your attorney?  NO!  Such “Bankruptcy Fraud” is not worth 5 years in jail and/or 1/2 million dollar fine!  Instead, it depends.  

Technically speaking, any credit cards that have any balance whatsoever, must be listed in the bankruptcy schedules and those creditors will get notice of the bankruptcy.  They will also most likely cancel the account upon notice unless you agree to a reaffirmation agreement, and which is also entirely discretionary on behalf of the creditor.

If the credit card has a $0.00 balance on the date of bankruptcy filing, then it does not need to be listed since it is not a debt or claim of the bankruptcy estate.  So if you have a small balance, you can pay these creditors off right before filing(but speak to your attorney first to make sure a preference claim will not be asserted).

These creditors will receive no notice of the bankruptcy like the other creditors in the bankruptcy, but might get alternative notice should they subscribe to a bankruptcy monitoring service or independantly pull your credit report at a later date.  Then its rolling the dice as to what that particular creditor will do.

$0.00 balance creditors who get later notice of a bankruptcy may cancel the account, reduce the credit on the account, or do nothing.  It all depends upon that particular creditor’s policies and procedures.  In one case, my client had her credit card for 2 years, before it was finally cancelled by the creditor, and the creditor’s sole reason was due to the bankruptcy.  Most cases I see, the creditor does nothing.

But don’t worry about keeping cards through bankruptcy!  You will get new offers for credit cards immediately!  This is because the creditors understand you are a much better credit risk after filing than before.  After all, you generally can not file again for 8 years and you have no other bills you are obligated to pay.

Typically, you can expect several credit card offers each month, possibly each week, after filing.  I recommend getting at least 3 credit cards from better known banks.  Do not run up balances!  Instead, run your monthly expenses(food, clothes, utilities, etc) through these cards and pay them off  monthly.  This way, you are setting a new and perfect track record after bankruptcy, which will only now help to improve your credit score even further!

Worst case scenario, no credit card solicitations are received.  Actually thats a good thing. Afterall, our grandparents never used credit cards and got along just fine!

But yes, you want to reserve airline tickets, need other forms of ID, need a cell phone, etc.  So what do you do?  Easy.  Go to the nearest bank, give them $500, and get a “secured” credit card.  While this is your money that you are spending, eventually the bank will take notice of your good spending practices and start bumping up the “unsecured” portion.  You should eventually get to the point of $500 secured and thousands unsecured in available credit.

Generally speaking, most people are able to amount thousands of dollars in available credit within 1 to 2 years of a bankruptcy filing!  Again, the goal is not to accumulate debt, but to accumulate credit and a favorable credit score!  Pay the balances off each month!  Use credit to your advantage and elevate your score.  Never run up balances again!

Written by Michael. G. Doan

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