(714) 731-7595 info@spauldinglawgroup.com

Credit Cards and Bankruptcy

One of the first questions that a potential bankruptcy filer invariably asks is, “which of my credit cards can I keep?” and this is normally followed with, “how will I ever get a credit card again if I file bankruptcy?” Both of these questions are answered below:

1. Which credit cards can I keep after I file bankruptcy?

Bad news first: The short and general answer is you typically won’t be able to keep any of your credit cards that you have prior to filing bankruptcy. All creditors that an individual owes a debt to on the date their case is filed must be included in the bankruptcy schedules. Upon receiving notice of the bankruptcy filing, virtually every credit card company will shut down their account with the debtor.

Many debtors may have one or two credit cards at the time of filing that have a zero balance and therefore those accounts will NOT be included in the bankruptcy schedules and those one or two creditors will not receive notice of the bankruptcy from the court or the debtor’s bankruptcy attorney. However, many credit card companies will regularly check a debtor’s credit report in order to make the debtor special offers, increase credit limits, reduce credit limits, etc. When the creditor sees that other creditors are reporting that the debtor has filed bankruptcy, they will normally shut off the account as the credit card agreement usually has a clause that allows the creditor to do so.

Credit card companies also use a system called AACER (Automated Access to Court Electronic Records) which allows them to monitor all new bankruptcy filers in the United States. So, even where a creditor is not pulling your credit after you file and learning of your bankruptcy that way; they may be using AACER and find out about a debtor’s bankruptcy filing even sooner that they would by pulling credit randomly.

OK news second: One suggestion we provide to our clients with respect to keeping a credit card that has a zero balance (or possibly even a very small balance) on the date of filing is to contact that creditor and let them know that a bankruptcy petition is going to be filed and see if the creditor will allow them to keep the account. Knowing that the creditor is going to learn of the bankruptcy anyways, there is no chance of harm in doing this. With certain credit card companies, if the debtor has maintained good standing, the creditor will allow the debtor to keep this account going forward and retain benefits associated with the account (e.g. reward or mileage points).

Like the time tested adage goes, “If you don’t ask the question, the answer is always no!” So, if you want to keep a credit card or two that have zero balances at the time your bankruptcy is filed…Call your creditor and ask them!

2. How will I ever get another credit card after filing bankruptcy?

Good news last: You will have no problem getting new credit cards after filing bankruptcy. Virtually every individual or couple who file bankruptcy are literally flooded with credit card offers shortly after the case is filed; especially those that file a Chapter 7 bankruptcy. Shortly after filing, debtors receive more credit card offers than they could ever possibly want because the credit card companies know that if a debtor accepts their agreement and uses their credit card, the debtor cannot get another discharge in a Chapter 7 for 8 years from when the instant Chapter 7 was filed. Basically, the creditors have all the time in the world to collect an unpaid debt that a debtor incurs on their credit card after bankruptcy has been filed.

Of course, the credit card companies are banking on the idea that a debtor will jump at the first or second offer they receive and the offer will come with a very high interest rate. However, the interest rate should be irrelevant because an individual who has just filed bankruptcy knows that in order to reestablish good credit, he or she must use credit and repay it in full when it comes due. As such, no interest will ever accrue on the account.

For example, if the debtor spends $500 on the credit card for the month of August, the debtor will need to pay the full statement balance of $500 when it comes due in September per the terms of the agreement with the creditor (usually the following month). This way, a debtor will avoid any interest charges (regardless of the rate of interest associated with the card) and will be doing what they MUST do anyways in order to rebuild their credit and raise their FICO.

About the Author
Christian Spaulding is the founder and principal attorney at Spaulding Law Group. Mr. Spaulding has lived in Southern California his entire life and his family has been in Southern California since the late 1800’s. Mr. Spaulding received his undergraduate degree from Chapman University in Orange with a Bachelor of Science in Accounting. While completing his undergraduate studies, Mr. Spaulding was the recipient of the prestigious Wall Street Journal Student Business Award. Mr. Spaulding graduated at the top of his accounting program at Chapman University and attended law school at Chapman University School of Law where he was a Merit Scholarship recipient. Mr. Spaulding has focused his firm’s practice solely on consumer protection and bankruptcy since 2009.

Leave a Reply