October 19, 2017

Retaining Credit Cards through Bankruptcy

I have many clients who want to hold onto a credit card through bankruptcy. But this is not always the best idea and is a lot more difficult than it may seem at first blush.

In the first place, you must list all creditors you owe money to in your bankruptcy, including any medical bills and credit card debt. Omitting any creditor from your bankruptcy is perjury. But what happens when you want to keep a credit card open when you file bankruptcy? If you have a credit card open, in which you owe a zero balance ($0.00) on, this credit card is not actually a creditor and does not need to be listed in your bankruptcy.

However, just because a credit card has a zero balance ($0.00) and need not be listed in your bankruptcy as a creditor, the credit card may still be closed as a result of the bankruptcy filing. Most, if not all, credit card companies pay for a service to screen bankruptcies by social security number. Most credit card companies’ policies are to close the account once the bankruptcy is discovered, whether you owe $10,000 or $0.00.

While some people may think that if they pay the credit card down to zero ($0.00) prior to bankruptcy, they will not need to list the credit card as a debt for bankruptcy, and the card will remain open. The card in most cases will be closed. Additionally, this may create a recoverable “preference payment.” A recoverable preference payment essentially means you paid a creditor $600 or more in the 90 days before you filed the bankruptcy. In such cases, a bankruptcy trustee, or the individual who administers the bankruptcy, can recover this payment for the potential benefit of all your creditors. In this example, not only could your card with a zero balance on the day of bankruptcy filing be canceled, but a bankruptcy trustee could go after the credit card company for a recovery of funds.

But what about reaffirming the debt in bankruptcy? Certain debt can be reaffirmed through the bankrutpcy process, which essentially means you re-obligate yourself to the debt. Reaffirmation of debt makes better sense in the case where you get to hold onto the collateral, such as reaffirming a car loan and holding onto the car. I always advise clients never to reaffirm an unsecured debt, as there really is no benefit here.

After you file bankruptcy, opportunities for credit abound. An emergency credit card can be easily replaced after the bankruptcy is completed in most cases.

If you are interested in learning more about bankruptcy and its effect on credit, please feel free to contact me today for a free bankruptcy consultation.

Thank you.

Tom Butcher
Bankruptcy Lawyer
116 Highway 99 N #101
Eugene, OR 97402
541 762 1967
tom@butcherlawoffice.com

Pursuant to 11 U.S. Code ยง 528: "I am a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code."

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