In this article, we will explore the possibility of keeping some credit cards in the event of declaring bankruptcy. We will discuss whether you can keep any cards or not and what alternatives are available to you if you cannot keep them.
Can you keep any credit cards in case of bankruptcy?
Generally, you will not be able to keep credit cards if you declare bankruptcy. During liquidation, all creditors must be treated equally. Therefore, it would not be fair to pay off the balance of the primary national Visa card amounting to $5000 while keeping the personal loan you borrowed from the credit union at work.
When filing for bankruptcy, you must report all your credit cards, even those with a zero balance. Creditors will recognize your bankruptcy filing, and many creditors participate in services that scan bankruptcy filings nationwide on a daily basis. They compare the filings with their own criteria for customers. In most cases, even if you have a zero balance, any active account that matches the bankruptcy status will lose borrowing privileges immediately.
Note: If you do not list the accounts you did not mention in your bankruptcy papers, they will not be discharged from debt.
What happens to business credit cards?
If the company you work for has issued a credit card to you for paying costs and other expenses, you may be concerned about including it in the bankruptcy filing. You will have to include the card only if you are personally responsible for the balance.
Business credit cards come in three types based on responsibility for the account:
- The monthly statement goes directly to the employer, who is responsible for paying the bill.
- The monthly statement goes to the employee, who is responsible for paying the account and then seeks reimbursement from the employer.
- A combination of the two. The statement usually goes directly to the employer, but employees reimburse the company for any personal expenses.
When filing for bankruptcy, you must list the card if you have any personal responsibility for it. If the company bears the full burden and you have no responsibility for the account, you do not need to list the card.
Note: If you are unsure whether you are responsible for payment, your HR department should be able to clarify that for you.
Alternatives to business credit cards
Including a business credit card account in a bankruptcy filing is not the best option for you or the employer, but it is not the end of the world. It will require you and the employer to look for an alternative solution. For example:
- Another business credit card: Many national banks offer business credit programs, including American Express, Bank of America, Capital One, Chase, and Citibank. The employer is likely to have relationships with one or more of these banks and can access a business credit card program. The employer will likely need to approve an account that does not require you to have any responsibility.
- Company debit card: The employer may provide you with a debit card. Employers usually do not like this arrangement because they have fewer options to control spending when money is deducted directly from the deposit account.
- Personal debit card: The worst-case scenario is when the employer asks you to use your personal debit card, but compensates you later.
- Personal credit card: You can try to open another credit account after your bankruptcy case is resolved. In fact, you are likely to start receiving offers within a few months. Most of these offers will be high-fee/high-interest cards or secured credit cards, but they are a way to get back in the game and obtain a card for your next business trip.
After
Bankruptcy
The announcement of bankruptcy may feel like the end of the financial world, but you won’t have to wait long to start rebuilding your credit history. Bankruptcy will remain on your record for seven to ten years, but you will be able to start applying for credit long before that. There are creditors willing to work with people in these situations to help them rebuild their financial profiles.
You will likely need to apply for a secured credit card. These cards require a deposit – usually placed in a savings account – that is equal to your credit limit. Once you demonstrate a good history of purchases and payments, the credit card company will usually lift the security and refund it, agreeing to let you use the card unsecured.
Look for cards with low fees, but be prepared to pay a higher interest rate and carry a low credit limit.
Takeaways
- When filing for bankruptcy, you must include all creditors you owe money to, even credit cards with a zero balance.
- When the card issuer discovers you are in the process of bankruptcy, they are likely to close your account.
- It may be necessary to include business credit cards if you are personally responsible for the debt.
- You can rebuild your credit history after bankruptcy, but the cards may be secured and/or have high interest rates and low credit limits.
Source: https://www.thebalancemoney.com/can-you-keep-credit-cards-if-you-file-bankruptcy-4149683
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