CAN I KEEP A CREDIT CARD WHILE IN CHAPTER 13 BANKRUPTCY?
I probably answer over a hundred questions for my clients each week. Unfortunately, my answers are often long, complicated or the oh-so-helpful “it depends." Luckily, once in a while, I get a question like the one in the title of this article, and I get to give a simple, easy to understand answer. “No." I have answered the question and it seems like I should be able to stop now, but I am an attorney, and therefore sometimes long-winded, so I feel compelled to elaborate.
The first reason you cannot keep a credit card is because you are not allowed to show preference to specific unsecured creditors while in bankruptcy. When you file Chapter 13 bankruptcy, you must list all of your debts. Debts are divided into three general categories in your schedules. These include secured, priority and unsecured debts. Credit card debt falls into the unsecured category. In bankruptcy, you cannot make payments to an individual unsecured creditor in preference to other unsecured creditors. They must receive equal treatment. If you make payments to an individual credit card, excluding disbursements from the Trustee, then you are showing preference to that creditor.
The second reason you cannot keep a credit card while in Chapter 13 bankruptcy is because The Bankruptcy Code specifically states that a debtor in bankruptcy cannot incur new debt without permission from the Court. Depending on your situation, bankruptcy courts will allow you to incur new debt to modify mortgage loans and purchase or lease new vehicles, but I have yet to see an order granting a motion to allow a debtor to keep a credit card.