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Can You Keep Your Credit Cards When You Declare Bankruptcy?

08/04/2008

When you declare bankruptcy you are expected to turn in a list of all your debt – credit cards, medical bills, mortgage, everything. But what happens if you want to hang on to a credit card and use it after you declare bankruptcy? Is it legal?

Technically you can hang onto a credit card or two when you file bankruptcy, but you have to handle it carefully.

The correct way to keep a credit card through bankruptcy:

Now, the main reason for keeping a credit card active is simple. You will not be able to get anything but a secured card (or a card with $250 in up front fees) right after you declare bankruptcy. Being able to keep a card with a decent interest rate through your bankruptcy will help you repair your credit that much faster.

The risks:

If you can’t pay down your credit card balance at least six months prior to your bankruptcy, there is still one way you might be able to keep your credit account.

You can do what is called “re-affirming the debt.” This basically means that you call your credit card company, explain that you are filing bankruptcy, and that you would like to keep your card. It’s sketchy territory.

Your lender will want you to keep the debt and pay them back, but you are going to have to convince them that you really can do it. Otherwise they will close out your account. If that happens you will be stuck with the debt after your bankruptcy, and you still won’t have an open credit account.

Is there a better option?

There might be. Look at it this way: If you owe $12,000 on a card – even if it has an excellent interest rate, you are going to run into a lot of problems trying to keep it open throughout the bankruptcy proceedings. Financially, it makes more sense to include the card in your bankruptcy. Take the $1200 (or $600 or $300) you would have used to pay down that card and put it into a secured card after your bankruptcy is discharged.

Cards like the Orchard Bank Secured Credit Card have very low interest rates, are easy to get, and you even earn a tiny rate of interest on the money in your savings account. This acts as a failsafe too. If something bad happened and you got behind on that card after bankruptcy, then at least you know the savings account will cover your balance in the event of a default.

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