Understanding How Bankruptcy Affects Credit

Understanding How Bankruptcy Affects Credit

Understanding How Bankruptcy Affects Credit Cards

In the United States, 61% of consumers have at least one credit card, and the average American family has a credit card balance of $6,200. This reliance on credit cards can leave some consumers with high-interest payments and mounting debt they can’t get out from under without filing for bankruptcy. Consider what happens to credit card accounts after bankruptcy. 

Are Credit Cards Canceled During Bankruptcy Proceedings?

When you fill out your initial bankruptcy paperwork, you’ll be asked for information about your debts. The bankruptcy court will send a notice of bankruptcy filing to all your creditors, including the financial institutions that manage your credit card accounts. The credit card company will then determine whether they want to cancel your card or modify your account. 

Can You Omit a Credit Card During Bankruptcy Filing?

You are legally required to disclose all of your debts to the bankruptcy court; however, if one of your credit cards does not retain a balance, then it is technically not considered a debt. In other words, you are within your rights to omit a credit card account from your bankruptcy filing papers. Note that bankruptcy filings are made public and are reported to the major credit bureaus, which means your credit card company may still find out about your bankruptcy and cancel your account. 

Do You Have To Physically Turn Over Your Credit Cards?

A bankruptcy trustee may ask you to surrender your credit cards at your meeting of creditors. However, trustees do not have the legal authority to enforce this request. If you want to keep your zero-balance cards, you can ask for the privilege to do so. If you have a good reason for why you wish to retain the card, the trustee may agree to let you do so.

What Is Credit Card Reaffirmation?

In some cases, you can reaffirm your credit card after the bankruptcy case is filed. Reaffirmation requires you to sign a new contract with the credit card company where you’ll be personally liable for any debt accrued after that point. Reaffirming a credit card should not be taken lightly because you will lose the right to discharge that debt in a subsequent bankruptcy, which could be financially devastating in some cases. Filing for bankruptcy can seem intimidating, but it doesn’t have to be. Turning to a bankruptcy attorney, like Law Offices of Ronald I. Chorches, can help you get answers to your questions and guide you through the debt-relief process.