Can I keep my credit card if I file for Chapter 7 bankruptcy?
I just had a client call with the same questions we’ve been asked a million times before… “Can I keep my credit card if I file for bankruptcy? It’s a great question that unfortunately gets the typical lawyer answer. “It depends.” Unlike a lot of legal questions, however, this is one that can get mostly explained during a quick phone call. The following information usually answers my client’s questions.
The simplest answer is that you can decide to keep one of your credit cards open if that credit card company lets you. It really comes down to the status of your credit card and which credit card company we’re talking about.
Do I have to list all my credit cards on the bankruptcy petition?
When you file for Chapter 7 bankruptcy in Michigan you are required to list all your creditors on your petition. Whether or not you have to list a creditor depends on if there is currently a balance on that card. If you are in default (haven’t paid in a while) or have a balance and making minimum payments you have to list them on the bankruptcy petition. Most credit card companies will cancel your credit card with them unless you reaffirm (agree to pay back) the debt.
It’s a different story, however, if your account is open but paid off at the time of filing. An open account with no balance isn’t considered a debt, and so you don’t have to list them on the bankruptcy petition so that they receive notice. Some clients decide they want to pay off the balance on one of their credit cards. Either they like the bank that issued the card, they’re afraid of not being able to get a credit card after bankruptcy, or they don’t consider that their “main” debt and so they want to pay it off.
What happens if my credit card company finds out that I filed for bankruptcy?
Clients are sometimes surprised to find out that even if they pay off one of their credit cards, the credit card company can still close the account if they find out about the recent bankruptcy filing. In fact, they’ll probably find out about it through the credit bureaus or other reporting agencies. The danger is that even after struggling to get a credit card paid off before filing bankruptcy, the company may still decide that you’re a higher credit risk now that you have a history that includes bankruptcy.
Will I be able to get a credit card after filing for bankruptcy?
The reason I usually don’t suggest trying to keep a credit card while filing bankruptcy is because you’ll get plenty of offers in the mail once you file. Although your current credit card company may decide that you’re a higher risk because of the filing and cancel your card, there will be plenty of other companies that see you as a much safer bet since you don’t have all that other debt to worry about after bankruptcy. You have to be careful, however, as many of these offers come with very high interest rates. While I like to reassure clients that bankruptcy won’t prevent them from obtaining credit in the future, there are a series of steps that should be taken to rebuild your credit as quickly as possible.
As usual, these blog posts shouldn’t be taken as legal advice nor does it form an attorney-client relationship. Laws are always changing and every state and situation is unique. Contact us or your local bankruptcy attorney for specific advice for your situation. Michigan consultations are always free if you call us at (248) 237-7979.
-by Nick Best