Is There A Way To Keep Credit Cards When Declaring Bankruptcy?

Stressed financial owe asian young couple love sitting stressed and confused hand calculate expense from credit cardWhen facing financial difficulties, bankruptcy might seem like a pivotal reset button. For many in Louisiana and Texas, this path offers a legal remedy to overwhelming debt. However, a common concern arises: Can you keep your credit cards when you declare bankruptcy? Here at Diment & Associates, a leading Louisiana bankruptcy law firm, we understand these concerns. The answer isn’t straightforward, but it’s crucial for managing your expectations and planning your financial recovery.

Immediate Answer: It Depends

Whether you can retain any credit cards after filing for bankruptcy largely depends on several factors, including the type of bankruptcy filed and the decisions made by your creditors. In cases of Chapter 7 and Chapter 13, the nuances differ significantly.

Chapter 7 Bankruptcy and Credit Cards

Under Chapter 7 bankruptcy in Louisiana, which is often referred to as liquidation bankruptcy, most of your unsecured debts, including those from credit cards, are discharged. The U.S. Bankruptcy Code, specifically under 11 U.S.C. § 727, provides for the discharge of debts following the liquidation of non-exempt assets by the bankruptcy trustee. During this process, you’re generally required to surrender all credit cards to your bankruptcy trustee.

Credit card companies typically cancel any cards once they are notified of the bankruptcy filing. There is an option, however, for the debtor to reaffirm certain debts. According to 11 U.S.C. § 524(c), a reaffirmation agreement legally binds you to continue paying the reaffirmed debt despite the bankruptcy discharge. This means you could potentially keep a credit card if you and the credit card issuer agree to a reaffirmation, but this comes with substantial financial risks. It’s crucial to evaluate whether maintaining access to credit justifies the potential future financial liabilities. Learn more about Chapter 7 Bankruptcy in Louisiana.

Chapter 13 Bankruptcy and Managing Debt

Chapter 13 bankruptcy, known for its debt reorganization model, offers a different pathway. Under this form of bankruptcy, codified under 11 U.S.C. § 1328, you are allowed to keep your assets and propose a repayment plan to creditors, which lasts between three to five years. This plan must be approved by the court and is overseen by a bankruptcy trustee.

With Chapter 13, it’s possible to retain possession of your credit cards. However, the court generally imposes restrictions on incurring new debt during the repayment period, which can limit your ability to use existing credit cards or to obtain new ones. The rationale is to prevent new debts from disrupting the structured repayment plan approved by the court.

Retaining a Credit Card for Emergencies

In the context of bankruptcy, retaining a credit card specifically for emergencies can be a crucial step for those seeking some financial flexibility during a challenging period. The possibility of keeping a credit card post-bankruptcy filing depends on several legal and financial factors.

Under U.S. bankruptcy laws, there isn’t a direct prohibition against keeping credit cards during bankruptcy. However, the feasibility of retaining a credit card largely hinges on the policies of individual creditors and the specific circumstances of the bankruptcy case.

For a credit card to remain active post-bankruptcy, it generally must have a zero balance at the time of filing. This is because debts associated with a zero-balance credit card are not listed as part of the debtor’s obligations in the bankruptcy petition, given there is no outstanding debt to discharge on that card. Creditors, upon reviewing accounts following a bankruptcy notification, might not automatically close a zero-balance account unless it explicitly contravenes their internal policies regarding bankrupt clients.

Creditor’s Discretion

The decision to allow a debtor to maintain an emergency credit card account ultimately rests with the creditor. Some creditors may be willing to keep the account open as a gesture of goodwill or business strategy, aiming to retain the customer long-term. This agreement would typically require clear and transparent communication between the debtor and the creditor, ensuring that both parties understand the terms and conditions of maintaining such an account during the bankruptcy process.

Alignment with Bankruptcy Strategy

Retaining a credit card during bankruptcy should align with the overall debt relief strategy. For those under a Chapter 13 repayment plan, maintaining a credit card might be feasible if the court and the bankruptcy trustee approve the arrangement. This approval is contingent upon the demonstration that the credit card is necessary for reasonable and necessary living expenses and that its use won’t jeopardize the debtor’s repayment plan.

In contrast, for Chapter 7 cases, where the debtor’s non-exempt assets are liquidated under 11 U.S.C. § 704, any decision to retain a credit card would need to consider the risk of reaffirming any potential residual balance, which could undermine the fresh start principle foundational to Chapter 7.

Best Practices and Considerations

For debtors considering keeping a credit card for emergencies, it’s advisable to:

At Diment & Associates, we are dedicated to providing our clients with comprehensive guidance on managing their finances during bankruptcy, ensuring they make informed decisions that aid in their financial recovery.

Making an Informed Decision

Deciding whether to keep credit cards during bankruptcy involves a strategic evaluation of your financial situation and long-term goals. At Diment & Associates, our bankruptcy lawyers in Baton Rouge are committed to guiding you through the legal process and helping you make choices that are in your best interest financially and personally. If you’re considering bankruptcy and are worried about your credit options, don’t hesitate to reach out.
For personalized advice and to discuss your specific circumstances, contact us today.

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