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Can You File for Bankruptcy and Keep a Credit Card?

7 min read
Francesca Toledo, J.D.

by Francesca Toledo, J.D.

When you face financial troubles, you have many options available to you. Bankruptcy is one of the best choices to achieve a financial refresh.

Among concerns you may have with bankruptcy, you might wonder what happens to your credit cards. What happens to your credit cards during bankruptcy depends on the chapter you file. Generally, you can expect to lose your ability to use your cards or lose the cards altogether during your bankruptcy process. 

If you’re considering filing for bankruptcy, don’t do it alone. Speak with a local attorney today for a free consultation.

What is Bankruptcy?

Bankruptcy is the legal process debtors use to seek financial relief. Depending on which chapter of bankruptcy you file for, it can help you discharge certain debts, liquidate assets to help repay debts, or create a repayment plan. 

Federal law dictates bankruptcy, with states having their own state-specific laws. You can select from six types of bankruptcy in the United States: Chapter 7, Chapter 9, Chapter 11, Chapter 12, Chapter 13, and Chapter 15.

Common Types of Bankruptcies for Individuals

While there are six types of bankruptcies, individuals usually file two types: Chapter 7 and Chapter 13. 

Chapter 7 bankruptcy discharges certain unsecured debts, meaning they’re eliminated without the need to repay. These unsecured debts can include:

  • Credit cards
  • Store cards
  • Medical bills

You’re not able to discharge secured debts, such as mortgages and car loans. 

If you have certain assets, you may liquidate some of them to help repay other debts.

If you have significant income, you may not qualify for Chapter 7 bankruptcy and may instead opt to file for Chapter 13 bankruptcy.

Chapter 13 bankruptcy, also known as the wage earner’s plan, allows you to create a repayment plan and submit it to the bankruptcy court for approval. Your repayment plan will take three to five years to complete. 

Chapter 13 eliminates your unsecured debt the same as Chapter 7, but it doesn’t require you to liquidate any assets to repay your debts.

The other Chapters of bankruptcy—Chapters 9, 11, 12, and 15—have other requirements and are not for consumers.

What Happens to Credit Cards When You File Chapter 7 Bankruptcy?

In a Chapter 7 bankruptcy, you are unlikely to ‌keep any credit card.

When you file for Chapter 7 bankruptcy, you’ll need to list every debt you owe, excluding none. Some individuals try to cheat the system by paying off one credit card to avoid adding it to their list of debts, believing this will allow them to keep the credit card. While it seems like a good enough idea, this frequently fails. 

Even if you have a $0 balance on a credit card when you file for bankruptcy, you’ll still need to report it in your filing. For a Chapter 7 bankruptcy, you’ll need to report any significant payments made 90 days prior to your filing. 

If, for example, you have a balance of $1,500 on a credit card and pay it off a month before filing for bankruptcy, you need to report that. A bankruptcy trustee can ask the credit card company to refund that money you paid and use it toward other debts you owe.

You should avoid timing your bankruptcy to avoid reporting paying off your credit card. The bankruptcy court may consider that fraudulent.

Usually, when you file for bankruptcy, credit card companies cancel your credit card even if you have an open balance.

What Happens to Your Credit Card When You File for Chapter 13 Bankruptcy?

In a Chapter 13 bankruptcy, you may be able to keep a credit card. However, you can’t use it. You’re also not allowed to apply for new credit cards during this time. Therefore, even if you can keep your credit card(s) during a Chapter 13 bankruptcy, they’ll be useless to you.

When you file for Chapter 13 bankruptcy, you’re creating a repayment plan to pay back your debts. By law, you can’t increase your debt without receiving permission from your bankruptcy trustee. 

Other Types of Credit Cards

When filing for bankruptcy, there are two other scenarios you may be unsure about: corporate credit cards and authorized user cards.

If your employer has provided you with a corporate credit card to pay for work-related expenses, your company is likely responsible for the account. If this is the case, you can continue using a corporate card regardless of your bankruptcy.

If you’re listed on the account and are partly responsible for repaying the corporate card, you’ll have to include it in your Chapter 7 bankruptcy, and the credit card company will probably close the account.

If you’re an authorized user on someone’s credit card, this means you have a credit card on someone else’s account. Therefore, it is not your account, and you are not financially responsible for it. If you’re just an authorized user, you won’t have to report it on your bankruptcy, and your case will not affect the primary user.

Can You Ever Get a Credit Card Again After Bankruptcy?

Yes. A bankruptcy filing does not take away your ability to have a credit card forever. However, the time ‌to ‌get another credit card depends on your case.

Chapter 7 bankruptcy is fairly quick, as it normally takes only a few months to discharge your debts and complete your case. After your case is done, you can begin rebuilding your credit. In just a few short months, you may start applying for credit cards.

Chapter 13 takes more time. You’ll spend three to five years paying off your debts, and in that time, you won’t be eligible to apply for any new credit cards. You’ll have to wait until you’ve repaid your debts and started building your credit to get a new credit card.

While it can take some time, you’ll eventually enjoy financial freedom and qualify for new credit cards.

Tips for Rebuilding Credit After Filing Bankruptcy

After bankruptcy, you’ll likely want to begin re-establishing good credit. Credit is essential, as it dictates your ability to get credit cards and other types of financing, like mortgages and personal loans.

To help rebuild your credit after bankruptcy, ‌do the following:

  • Monitor your credit report regularly: Check your credit score frequently to monitor your credit health. If there are any inconsistencies or misinformation, report them as soon as possible to get them removed from your report.
  • Pay bills consistently and on time: Pay all your monthly bills on time every month. Doing so can help boost your credit score.
  • Apply for a secured credit card: A secured credit card differs from a regular credit card. When you apply for a secured credit card, you make an up-front payment that’s used as your credit limit. This protects the credit card issuer while giving you a chance to build your credit when payments are timely and consistent. 
  • Ask someone to be your co-signer: Applying for a loan with a co-signer can help with approval odds. A co-signer is an individual that agrees to take on the debt should you fail to pay. If you make timely payments on the loan, this can help your credit score.

Many individuals shy away from filing for bankruptcy for fear they’ll never have good credit again. That’s not true. With hard work and patience, you’ll have better credit in no time after your bankruptcy. 

How Can a Bankruptcy Attorney Help?

A bankruptcy attorney can help with every part of your case.

When you have specific questions and concerns, like about credit cards, a bankruptcy lawyer can address these concerns and come up with the best legal strategy to meet your needs and goals.

A bankruptcy attorney in your area can provide these services:

  • Answer your questions
  • Explain the laws and procedures
  • Help you choose the best bankruptcy chapter for you
  • Determine whether any exemptions benefit your case
  • Draft and file necessary paperwork
  • Represent you whenever needed

Bankruptcy can be scary and overwhelming, but a qualified lawyer can help make the process easier and help get you on the path to financial freedom.

Consider Guidance from an Unbundled Lawyer

While many individuals seek the help of a traditional bankruptcy attorney, they can expect to spend thousands of dollars for legal guidance. An unbundled lawyer can achieve the same goals at a reduced cost.

An unbundled lawyer is like a traditional bankruptcy attorney, but they let you choose what services they provide. While a regular bankruptcy lawyer handles every aspect of your case from start to finish, an unbundled lawyer is available to you when you decide you need them most.

Whether you need help with choosing the best chapter bankruptcy for you or drafting the ‌paperwork, an unbundled lawyer has your back. When you’re ready to discuss bankruptcy, we can connect you with a local lawyer.

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