Can I keep my credit card if I file bankruptcy?
Stock answer: no, and I do not advise that you reaffirm a credit card after filing bankruptcy. You’ll get an offer for new credit cards anyway.
What people are usually wondering when asking this question: should I keep a credit card for emergencies and to pay certain bills after a bankruptcy so that I can “keep good credit” with that particular credit card?
You must list all credit cards that you carry a balance with. Failure to do so can be constituted as perjury, which in turn may lead to a denial of your bankruptcy discharge, or federal criminal charges.
You are not required to report ‘zero balance’ creditors on your bankruptcy. However, if you’ve recently made payments to get it down to zero, you can you expect a challenge from the trustee and potentially land in some hot soup. Many credit cards may find out about your bankruptcy and cancel the card anyway, even if your balance is zero.
Most credit card companies will allow you to keep your credit card after bankruptcy if you agree to enter into a new agreement, signed after the bankruptcy filing (called a “reaffirmation agreement.”)
Rebuild your credit without credit cards
It’s actually tougher to rebuild your credit using credit cards, especially ones you reaffirm after filing bankruptcy.
Let’s say that after you file bankruptcy, the credit card approaches you to reaffirm the debt, which is $3,000.00, on the promise that you’ll ‘rebuild’ your credit more quickly. Let’s also say that you will be offered a card with a low-level balance within months of your bankruptcy discharge (very likely.) Why would you pay $3,000.00 for the benefit of having revolving credit when you’ll be offered the same opportunity to ‘rebuild credit’ anyway? In other words, that $3,000.00 is essentially an annual fee for keeping the card.
Keeping your credit card debt actually hurts your credit because it reduces the positive effects that a bankruptcy has on your debt to income ratio: the more debt you keep, the worse your ‘fresh start’ looks via the credit score.
I do not advise using credit cards past bankruptcy. You can rebuild your FICO score using a good financial plan, and by carrying short term loans through a bank that you know you can quickly repay.
Credit Cards No-no’s Prior to Filing Bankruptcy
Never run up lots of credit card debt in the month or two prior to filing for bankruptcy.
Never open up a new credit card.
Never try to pay your ‘favorite’ card off in hopes to keep it.
Never use money from friends or family to pay off your ‘favorite’ card to keep it.
Never sign a reaffirmation agreement for your credit cards.
Think twice before believing that you can ‘save your credit’ after a bankruptcy through reaffirmation.
New Credit Card Act: Leftovers for the Little People
Crumbs have finally landed from the TARP handouts for the consumer-taxpayer, and a cap on credit card rates was soundly defeated using lobby dollars of the credit card industry.
My assessment after reading the entirety of H.R. 627: a step in the right direction to placate the growing ranks of consumers who desperately need relief from the outrageous usury practices of the credit card industry, but nowhere near as effective as advertised.
The term “Little People” is a term of art, and used affectionately. I have no idea how tall credit card users are these days, but I count anybody outside the immediate payouts of TARP funds to be ‘little’ in comparison. They’re my people: the people I work for, and grew up with.
The Good
- Increased disclosures to consumers concerning credit card terms
- Elimination of double-cycle billing
- Measures to counter over-the-limit fees
- Credit card bills would be paid on the same day each month
- Restrictions on increasing charges and rates for newly issued cards
- Requiring AnnualCreditReport.com to be advertised through credit report providers*
- Restrictions on ‘ninja fees’ for gift cards
- FTC will oversee efficiency of how credit cards are closed for estates
The Eh
- Companies can lower interest rates for consumers using review process established by credit card companies
- Those under 21 need a cosigner or must assert eligibility through application
- Colleges should restrict access to credit cards on campuses
- Studies authorized to assess PIN security, cross-marketing of credit cards and security for small business accounts
- Congress will look into shifting credit card fees at point of sale (interchange fees)
- The ability of the consumer to afford a credit card will be considered
Concern: Effective 15 months from Obama’s signature, and we haven’t seen details of review process that will be established by credit card companies and approved by Board
Concern: no measures proposed to double check accuracy of application
Concern: no teeth. They should get rid of the bowl system, too.
Concern: Fluff. So glad we need Congress to pass laws to look into things.
Concern: Congress effectively tabled the issue. Learn about it here.
Concern: This could mean less cards issued – and more depsperate measures taken by consumers to qualify for them.
The Ugly
- Penalties for credit card companies aren’t severe enough if they violate the Act ($500-$5,000 per violation in some cases)
- Effective date of Bill on most measures won’t occur for another 9 months
- The practice of usury at the high interest rates consumers suffer from for rates and penalties, will continue
And The Interesting
- Stored Values of credit cards and purchasing information will be regulated, in part to help us fight terrorism (allegedly)
- I can conceal a loaded weapon in national parks like GW said I could when he left office
*I like this one. I’ll ask my clients if they know where to get a free credit report and a good percentage respond “FreeCreditReport.com” (which isn’t free.)
Consumer Groups Rally to Support New Credit Card Reform
President Obama spoke about credit card reform while at a town hall meeting in New Mexico yesterday, urging Congress to pass a bill by Memorial Day. Consumer groups are mustering as much support as they can to combat the influence of the credit card lobby to water down the current legislation. I went ahead and submitted my support to my local Senators in support of S. 414 and urge you to do the same.
The Consumerist has put together some bullet points highlighting the key provisions of the proposed legislation.
Creditcardreform.org has invested in a toll free number where you can call your senator to urge the passing of the bill.