Bankruptcy is a legal process that can discharge certain unsecured debts, such as credit cards, past due utilities, and medical bills. When Pennsylvania consumers file for bankruptcy, they must list all debts on the petition, even credit cards with a zero balance. They may wonder if they can keep their credit cards after they file.
How bankruptcy handles credit card debt
How credit card debt and the credit cards get treated depends on the type of bankruptcy filed and lender terms. Most credit cards count as unsecured debt in bankruptcy, which means no collateral attached to it. Chapter 7 requires debtors to list assets to sell on the petition to pay creditors, so an unsecured credit card debt will commonly rank last on the list of dischargeable debts.
Chapter 13 restructures debt into a manageable court-approved payment plan the debtor devises to pay creditors over three to five years. Chapter 13 filers commonly do not have to pay this debt in full, but some credit cards require a security deposit, making them a secured debt. However, Chapter 13 requires the debtor to have sufficient income to pay the debts.
Keeping cards after bankruptcy
The creditor usually gets notified of the bankruptcy, and they may cancel the card or raise interest rates, even if not listed. Some credit card companies obtain information from a customer database that alerts them to bankruptcy filings.
While the debt is likely to get discharged, debtors can not keep a credit card after bankruptcy for two reasons. These reasons are that all credit card companies must be treated the same, and bankruptcy code prohibits debtors taking on new debt. The debtor commonly has no liability for corporate credit card debt, unless they filled out an application as for a standard card. Some credit card companies may allow the debtor to reaffirm the debt, which makes a new agreement.
Consumer bankruptcy offers a legal way out of debt, but people should consider it carefully. A lawyer may be able to give them advice and determine which form they are eligible to pursue.