When filing Chapter 7 bankruptcy in Arizona, you may want to withhold a credit card for travel, future purchases, or emergencies. There is a slim possibility you may be able to keep a zero balance card, but will certainly qualify for a new credit card within 60 days of filing your case.
The best way to determine if excluding a credit card from Chapter 7 bankruptcy is possible is to consult your bankruptcy attorney in Scottsdale. They can lay out your options and help you choose the best course for handling your credit card.
Below, we look at whether you can exclude a credit card from Chapter 7 bankruptcy and the factors you should consider before doing so.
The short answer: it’s possible but not likely.
Credit card debts are unsecured and dischargeable in bankruptcy. All balances will be wiped out. As a result, your credit card providers will likely close your accounts once they receive the bankruptcy filing notice.
However, there are rare exceptions (which we cover in detail below). Whether you plan to keep or discard the card, you must disclose all credit accounts in your bankruptcy petition.
In most cases, the bank will close your credit card after a Chapter 7 Bankruptcy is filed because the lender does not want any trouble from the bankruptcy court. . They may be sanctioned for communicating with you for any debts owed including notices for zero dollar balance. However, there are rare situations where you keep the card. Three main factors determine whether you keep or lose your credit card:
If your credit card has a zero balance, the provider may allow you to keep it after bankruptcy. However, it’s rare. Accounts with balances must be listed as creditors and will likely be shut down.
You may wonder how credit card companies find out about bankruptcy. There are three main ways: public records, credit reporting agencies (EQuifax, Experien, or TransUnion), and PACER (Public Access to Court Electronic Records). Once you file, your account is flagged for bankruptcy in their system.
Reaffirmation involves agreeing to repay a debt despite bankruptcy, but it’s rarely advisable for credit cards. Courts seldom approve credit card reaffirmations due to their unsecured nature.
A reaffirmation is an agreement the credit card company can provide stating you agree to assume all the debts owed at the time your case was filed. This will take the credit card debt outside of the bankruptcy protection. This agreement must be approved by the Judge-it is rarely, if ever, approved. Our bankruptcy judges in Arizona strongly believe that the bankruptcy process is to give you a fresh start and this includes the elimination of credit card debts.
A reaffirmation for a secured credit card is more likely to be approved. A secured credit card is secured/attached to money you have pre-paid into an account or provided the company to hold. Since there is money you will lose, the Judges are more inclined to approve if you can afford it.
Rebuilding your credit after bankruptcy can help you get a new card or loan in the future. You’ll receive numerous credit card and loan offers in the mail after your file.
Consider applying for a singlesecured credit card to establish a positive payment history after your Chapter 7 Bankruptcy Case is filed. Monitor your credit reports regularly and dispute any errors that could hurt your credit. All of your unsecured debts are must stop reporting to the three credit bureaus after your discharge. This will allow quick credit recovery. Over time, you’ll rebuild your credit and you’ll qualify for the same credit card benefits.
There are exceptions to almost any rule when it comes to bankruptcy. There are set bankruptcy procedures, standards and regulations but each case is reviewed on its own merit. Your Scottsdale bankruptcy lawyer can work with courts to make certain allowances, depending on your situation.
But don’t count on it. The trustee’s and court’s goal is to prevent you from a repeatbankruptcy filing. They wish to see you successful in your “fresh start:. . For this reason, the following exceptions are rare and usually go through heavy scrutiny before the court allows them.
Let’s look at a few exceptions that may allow you to keepyour credit card from Chapter 7 bankruptcy:
Bankruptcy is “all or nothing”: You can’t choose which debts to include in Chapter 7 bankruptcy because the bankruptcy code requires complete disclosure of all debts owed and notice to all creditors.. They also require complete disclosure of your financial circumstance and history. Omitting information or creditors can jeopardize your entire case. If the offense is major, it could result in fines, penalties, and jail time.
In the event there are any assets or money to be disbursed to your Chapter 7 creditors, there must be a fair distribution of funds. If you tried to exclude certain debts and pay them, the trustee could still pursue those creditors for money they received (anything greater than the $600.00 paid in the last 90 days) before your case is filed . The trustee has “clawback” power to recover preferential payments made to creditors before filing. The payment you choose to make to certain credit cards is considered “preferential.” The Trustee will claw the fund back and the credit card company will end up closing the card. The court’s goal is to give all creditors an equal chance at repayment from your non-exempt assets.
Trustees must follow strict priority payment rules set by Arizona bankruptcy law. Secured creditors get paid first, followed by priority unsecured creditors like tax agencies. General unsecured creditors, such as credit card companies, receive payment last.
Your attorney’s primary role is to guide you through the bankruptcy process and prevent you from making costly mistakes. They manage your case and take care of most of the paperwork. Your lawyer also engages with the trustee, court, and creditors on your behalf and makes sure your rights are protected. Finally, they help you find ways to rebuild your credit after the bankruptcy is discharged.
Here’s what you can ask your attorney to say or do if you ask them if you can exclude a credit card from your Chapter 7 bankruptcy.
Your attorney can discuss alternatives, such as obtaining a secured credit card after bankruptcy to help rebuild credit rather than trying to keep an existing card. The lawyer will advise you on how to disclose and handle all credit accounts in your bankruptcy filing.
Don’t let wage garnishment hurl you into financial hardship. Contact our bankruptcy law firm for a free consultation, and let us help you keep your wages. Fill out our online form or call Stone Rose Law at (480) 498-8998 to speak with a Scottsdale bankruptcy attorney.
