Many wonder if they’re able to keep a credit card in chapter 7 bankruptcy and while possible, it can be challenging to do so. Filing for Chapter 7 bankruptcy offers relief from overwhelming debt by discharging most unsecured debts, including credit card balances. However, when it comes to keeping a credit card during this process, it will depend on several factors.
How Chapter 7 Bankruptcy Impacts Credit Cards
Chapter 7 bankruptcy’s goal is to discharge most unsecured debt, including credit card debt, for a fresh financial start. When you file, the court issues an automatic stay that stops all collection efforts, including credit card payments. The stay protects you from creditor actions while your case is active.
Most credit card companies respond to a bankruptcy filing by closing your accounts, even if you have a zero balance. They generally do this to protect themselves from future financial risk. While this doesn’t happen in every case, most credit card accounts will be closed as part of the bankruptcy process.
Exceptions for Keeping a Credit Card
In limited cases, you may be able to keep a credit card in Chapter 7 bankruptcy. If you have a credit card with no outstanding balance when filing, the creditor may allow you to keep it. However, there is no guarantee; creditors often close all accounts regardless of balance to avoid future risk.
A reaffirmation agreement is a legal agreement between you and a creditor to keep the credit card account open and repay any balance after filing for bankruptcy. Reaffirming a debt means you agree to continue paying it, despite the bankruptcy filing. However, these agreements must be approved by the court, and reaffirming a credit card balance is rare, as it goes against the primary goal of debt relief in bankruptcy.
Challenges of Keeping a Credit Card in Chapter 7 Bankruptcy
Even with a zero balance or reaffirmation agreement, keeping a credit card can be difficult in Chapter 7 bankruptcy for several reasons. Credit card companies are not legally required to allow you to keep an account open. Many creditors have policies to automatically close accounts once they see a bankruptcy filing on your credit report, regardless of your balance or payment history.
Keeping a credit card may undermine the purpose of bankruptcy by allowing you to take on new debt shortly after receiving a discharge. Bankruptcy courts generally discourage this, as it can lead to future financial struggles. Reaffirming a credit card balance re-establishes your liability for that debt. If your financial situation worsens after bankruptcy, you may still owe the balance, which could defeat the purpose of filing.
Options for Rebuilding Credit After Bankruptcy
While keeping a credit card during Chapter 7 bankruptcy may be difficult, you can rebuild credit after receiving a discharge. Common options include:
- Secured Credit Cards: Secured credit cards require a cash deposit, which serves as collateral and limits the lender’s risk. Secured cards are often available after bankruptcy and can help you rebuild credit.
- Retail or Store Credit Cards: Some retail credit cards are easier to obtain than major credit cards. These can be useful for re-establishing credit, though they often have higher interest rates and limited usage.
- Credit-Builder Loans: Some banks and credit unions offer credit-builder loans, which allow you to rebuild credit while gradually paying off a small loan.
Each comes with its own benefits and disadvantages, so it’s important to look at each and decide what’s best for your situation.
Bankruptcy Lawyers in Tulsa
In Chapter 7 bankruptcy, keeping a credit card is often difficult, as most creditors close accounts regardless of balance or payment history. While it may be possible to retain a zero-balance card or reaffirm a debt, this defeats the purpose of bankruptcy’s debt relief. Instead, consider rebuilding your credit after bankruptcy through secured credit cards, credit-builder loans, or retail cards. Consulting a bankruptcy attorney can provide you with guidance on your options and help you navigate the bankruptcy process effectively.
Our team here at Tulsa County Lawyers Group will guide you through the bankruptcy process. If you need help, contact us today by calling (918) 379-4864 or reach us online for a consultation.
