Saturday, March 5, 2011


Bankruptcy is a scary thing, and if often laden in much mystery. One of these mysteries is whether or not you will be able to keep any of your credit cards after filing for bankruptcy, just for emergencies.

Generally speaking, credit card issuers will automatically cancel all credit cards as soon as the bankruptcy notice is filed. However, there are some exceptions to the rule where credit card issuers will allow you to keep a card. But, the credit card's value and APR will be modified.

This exception is only available to Chapter 7 bankruptcy filers, or those who are filing to get rid of all the debt. This is opposed to Chapter 13, where one files to have all debts consolidated and paid down according to a payment schedule.

Some issuers will allow you to keep the card, and will send you a proposed reaffirmation agreement. This reaffirmation agreement is a contract between you and the creditor. It states the new credit limit, along with the percentage rates. Normally, to agree to this, you will have to pay back all or some of the credit card debt to keep the card. The part you pay back is safe from bankruptcy, so after the filing is finished you will still have to pay back the debt if you agree.

If you agree to the reaffirmation agreement, then the card will be yours, but with a substantially higher interest rate. But, and you should pay attention to this to keep yourself from getting back into hot water, if you can pay down the credit card's balance each month, the higher rates will not be applicable. This also helps your credit score, as you will show that you are responsible and can pay your debts.

If you are filing anything other than Chapter 7, then all of your credit cards will be forfeit when the filing occurs. Some people try to get around this but not reporting credit cards which have a zero balance. This seems like it would work, because if the credit card has a zero balance, then that creditor isn't losing out.

This is illegal, as it shown preference to one creditor. Also, this credit card must be taken into effect when the trustee is calculating your repayment schedule. All in all, it's not worth trying to keep your credit card a secret, as this can land you with fines and jail time.

If you aren't eligible to file Chapter 7 and have to file another Chapter, and you didn't get approval from your credit card company to keep any of your cards, then the best thing to do is report them and give them up. After the bankruptcy is finished, you will work with a debt management consultant to rebuild your credit so you can be eligible for credit cards again.

By working hard and focusing on repaying all your bills after the bankruptcy, you can rebuild your credit and remove the stigma of bankruptcy.

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