Credit Cards in Bankruptcy
For many, credit cards are a major contributor to why bankruptcy is needed. For all, however, they can be dangerous to use right before you file.
Using Credit Cards Before Filing
Bankruptcy deals with secured and unsecured debts. Credit card bills are generally unsecured, unless the card was issued by a specific store with a properly executed security agreement. Debts owed on most credit cards, like Visa or MasterCard, are almost always unsecured. That means they will simply be discharged in a Chapter 7 bankruptcy. And it doesn't matter if you used the card for household goods or business expenses. Of course, if you use a credit card on the eve of filing for bankruptcy or at a time when you know you were going to have to file, you might find that such use is considered fraudulent and therefore not dischargeable. Typical secured cards are those from stores like Best Buy, etc. Electronic companies tend to securitize your use of the card with high cost purchases, such as a computer. That can mean that in a Chapter 7 bankruptcy, where your credit cards are being discharged, you might have to give back the computer or keep making payments. Often, however, the store can't produce the necessary documentation to prove the security and you will get to keep the item anyway and discharge the debt.
Keeping Credit Cards
One of the questions you are asked when you file bankruptcy is if you have listed all of your debts. If your favorite credit card has a balance, then it is a debt. If it has a zero balance, it is not a debt, and is not required to be listed. In a Chapter 7 bankruptcy, you may be able to keep the card after your discharge and you may be able to reaffirm your card if your card issuer allows it. Keep in mind that you would be fully liable for the remaining debt on the card. In a Chapter 13 bankruptcy, your trustee must approve any debt after filing, so keeping your favorite card may not be worth while. Almost without exception, the credit card company will cancel the credit card the moment that they find out you have filed bankruptcy.
The consequences of stopping payments to credit cards is typically that collections phone calls will begin rather quickly. Collection phone calls can be distracting and bothersome, especially if you have young children in the house who enjoy answering the phone. If your delinquency goes beyond a few days, then tone of the collection phone calls will change - credit cards bill collectors can be quite nasty. Secondly, note that delinquent credit cards payments will damage your credit. This concern may sound silly if you are thinking about bankruptcy, but realize that credit reports document history. A bankruptcy will damage your credit, but a bankruptcy plus several months of delinquency will damage it more. Anyone looking at your credit file after bankruptcy will see both the delinquent payments and the bankruptcy, which make make recovery more difficult. Finally, a certain percentage of bankruptcy filers end up either not filing or delaying their filings. What seems like a certain course of action today may bot seem like such an immediate need two weeks from now. Once you have made the decision to file bankruptcy, consult an attorney about when to stop payments. Typically the time is now.