Consumer Bankruptcy:

Keeping and Using Credit Cards

Credit card and charge bills are one of the most common types of debts that can be eliminated by filing for bankruptcy. In cases of Chapter 7 (and only in cases of Chapter 7) some credit companies allow you to keep your card with a significantly lowered limit, if you repay some portion of your debt. Some companies will go as far as to offer you (or your attorney) a reaffirmation agreement, while your case is pending. In most cases, it is foolish to accept these offers; they require you to pay some of your debt (which is already going to be eliminated because you filed for bankruptcy) and in return for this they offer you a very small amount of credit. 
 
After filing for bankruptcy, you cannot use your credit cards unless you receive the explicit permission of the court. Furthermore, if you use the exorbitantly immediately prior to filing, this debt will probably not be discharged. 
 
Following the court proceeding, once your debt is discharged, you will appear to be a better credit risk than you did before, because you no longer have any debts. However, you will likely be forced into accepting higher than average interest rates on new credit cards. That said, provided that you always pay your debt in its entirety, you will never get hit by any finance charges, and the high interest rate will not be an issue. 

It should also be noted that transferring balances, which is often used to lower the minimum payment, can become very problematic, especially when filing for bankruptcy. Transferring balances does not eliminate debt; it only makes one debt disappear by creating another one. If you have no intention of paying the new debt (as proved by the credit company), the court could find that debt to be incurred through fraud. As a consequence, it would not be discharged through bankruptcy. Furthermore, “convenience checks” and other methods of borrowing off the new credit card, like cash advances, should be avoided. Any of these that occurred within 60 days of filing for bankruptcy is automatically determined to be fraudulent. While there are some courts that investigate this further and may not deem them to be fraud, there is no way to be sure this would be the result in your case. You would have to further prove that you had the full intent to pay off the cash advance. Consequently, it is best to avoid them altogether when struggling with debt, as they can create more problems than they can solve. 

 

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