Credit Cards and Chapter 7 Bankruptcy
Personal Credit Cards
A common question that many individuals contemplating bankruptcy ask during our firm’s free consultation is whether they can retain a credit card during bankruptcy. In almost all cases, once a credit card institution receives notice of the bankruptcy filing, it will almost immediately cancel the debtor’s credit card.
In providing this answer to potential clients, they immediately ask if the credit card can be excluded from the bankruptcy petition. Practically this is understandable, because many clients want to keep a credit card for emergencies. Unfortunately, excluding creditors is not an option when filing for bankruptcy. Bankruptcy law requires that you list all debts owed to creditors on your bankruptcy petition. Accordingly, if you owe monies to any single creditor, they must appear on the filed bankruptcy petition.
Likewise, if a debtor has a zero balance on a credit card, it is likely that your credit company will still discover during the bankruptcy proceedings the debtor’s filing, and will immediately cancel his or her credit card.
It is possible, but extremely unlikely, that a bankruptcy court will permit an individual debtor in a Chapter 7 proceeding to reaffirm a credit card debt. In reaffirming a credit card, a debtor is entering into an agreement with the credit card institution that they reaffirm the balance owed. Again, it makes little sense for a bankruptcy court to reaffirm a credit card when the primary purpose of bankruptcy is to give the debtor a fresh start.
Corporate Credit Cards
If the debtor has a corporate credit card that their employer provides, the debtor will be required to list the credit card if he or she is an obligor. If the debtor is an obligor on the account, the debtor and employer are responsible for paying the balance. In such pre-petition situations, the debtor usually pays the balance and seeks reimbursement from the employer.
Alternately, if the debtor is an authorized user, business related charges will be billed to the employer directly, and since the debtor isn’t responsible for payment of the account, the credit card will not need to be included in the bankruptcy petition.
Post-Bankruptcy Credit Cards
Even if you lose your credit cards during the pendency of the Chapter 7 bankruptcy proceedings, which generally last approximately 90-days, a debtor will usually be able to obtain a credit card shortly after the bankruptcy proceeding. During my time as a bankruptcy attorney, I’ve had several clients tell me that after obtaining a bankruptcy discharge, they received more credit card offers than ever before. This is because post-discharge, the debtor retains no debt, and credit card institutions understand that the debtor cannot file for Chapter 7 bankruptcy for another eight years. However, the debtor needs to be cautious, because the terms of the credit card offers are generally not advantageous, i.e. extremely high interest rates.
If you are seeking to rebuild your credit after bankruptcy, please read our blog How to Rebuild Your Credit Score After Filing for Bankruptcy.
If you are considering filing for a Chapter 7 bankruptcy in New Jersey, please call our firm to discuss your case and potential options.
Whether you need to completely eliminate your debt through Chapter 7 bankruptcy, or need to reorganize your credit payments through Chapter 13 or Chapter 11, we are well qualified as a full-service bankruptcy law firm for people in these and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, and Sussex County. Call us today at 973-870-0434 or toll free 888-412-5091.