Filing for bankruptcy, such as a Chapter 7, can be a difficult and lengthy process, especially if you have complex finances. At the time you file, if you hold a balance on any of your credit cards, they will be listed among your debts. Credit cards can be a great tool for unexpected large purchases and emergencies, so you might be wondering whether you’ll be able to keep any of them after your bankruptcy.
Keep Old Cards After Reaffirming Balances
The good news is that some credit card companies do allow you to keep your card, if you reaffirm the balance and sign a new agreement. So, you must be absolutely sure that you need this card because you will continue to be responsible for the balance. Of course, if the balance is small, this may not be a bad option.
You can usually keep credit cards that you hold a zero balance on, but if they find out about your bankruptcy, they may increase your interest rates. There is also the possibility of them reducing or eliminating your account as well.
Obtaining New Credit Cards After Bankruptcy
If you decide to let go of your cards in the bankruptcy, it might be difficult to acquire new ones later since your credit score will take a hit. There are alternative options to help you through this recovery time, which could take six months to one year.
- Co-signed credit card: If you know someone who is willing to put their good credit score on the line for you, you may be able to acquire a regular credit card using their creditworthiness. This way, if you cannot make your payments, your co-signer is liable to do so, thus limiting the credit card company’s risk of a loss.
- Secured credit card: A secured card functions like a debit card, where you are required to provide the company with a cash deposit equal to the amount of your credit line. You then use this card like a normal credit card, allowing you to build your credit score back up while eliminating the risk to the credit company. If you pay all of your bills on time and upgrade to a regular credit card, the company then gives your deposit back. It is recommended that you keep your balance below 20 or 30% of your limit and pay it off every month to speed up your credit healing.
Remember, even under the extreme circumstances of filing for bankruptcy, you still have options and plenty of time to recover. Starting fresh is sometimes the best decision. Consult an experienced bankruptcy lawyer in Melbourne, FL if you are uncertain about what you should do to improve your financial situation.
Thanks to the Law Offices of Arcadier, Biggie & Wood for their insight into bankruptcy law and credit cards after filing for bankruptcy.