Can I Keep a Couple Credit Cards and Not File Bankruptcy on them?

Posted by Wesley Scott on May 30, 2020 at 10:21 AM
Wesley Scott

credit-card-851506_1920Bankruptcy is not something where you pick and choose what goes away and what does not. It takes a snapshot of all your assets and all your liabilities at a particular point in time (ie the date you file bankruptcy), and removes your personal liability for nearly all of them. The question is not what do I get to keep, but what survives a bankruptcy filing? That is: loans attached to vehicles and property (secured debt), debt from a divorce, child/spousal support, criminal court ordered fines, student loans, and most taxes.

It can be nice to have a credit card as a safety net for unexpected expenses, or even necessary for booking hotels, flights, and other accommodations. However, when it gets to the point to file bankruptcy, you should no longer keep making payments or pay off the balance on ANY credit card debt. Your liability for the debt is going away, so why waste your money by trying to pay it off? Save up the money in your bank account as your safety net, because even if you have $0.00 balance on your credit card, odds are the credit card company will close out the account due to bankruptcy anyway. Bankruptcy filings are part of the cost of doing business for these companies, as it determines the interest rates they offer, and they will not take it personally if you file for Chapter 7 or Chapter 13 bankruptcy..

Since filing bankruptcy removes your liability for debts based on the date you file bankruptcy, it is important to keep in mind that any contracts you sign after bankruptcy will NOT be included in it. So, while I strongly advise my clients against taking out debt after filing for bankruptcy, if you need a credit card for work or personal reasons, the better option is to take out a new credit card or open a “secured” credit card after your filing date. A secured credit card usually involves you funding the limit of the credit card ahead of time at a bank or credit union.

It can feel abnormal to let a credit card you have held for a long time go away. Sometimes people will even pay off one credit card in full and then file bankruptcy on the others. This is considered a “preferential payment” and you are not doing your bank or lender a favor. Bankruptcy trustees are specifically tasked with recovering money back from creditors who got paid an unequal or unfair portion.

While it can feel weird to let your credit cards go, there is something to be said about simplifying your life to a basic checking account(s) and debit card(s). Not using credit helps you track your income, expenses, and cash flow more directly. At Kain and Scott we have a FREE 90-Day Credit Repair Program where we offer tips and tricks to improve your credit after a bankruptcy discharge. We truly help you get your life back, and clearing out your debts in bankruptcy, can often be the best way to get a fresh start.

When you are ready, reach out to Kain & Scott at www.kainscott.com.

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