Will I Have to Cancel All My Credit Cards After Filing for Bankruptcy?

Filing for bankruptcy can be a daunting process, and one of the common concerns is whether you’ll have to cancel all your credit cards. The answer to this question is not a simple yes or no, as it depends on several factors, like the type of bankruptcy you file for and the specific circumstances of your case. In this guide, our attorneys at Eric Ollason, Attorney at Law, explore the implications of bankruptcy on your credit cards in Arizona and provide you with the necessary information to make an informed decision.

Chapter 7 Bankruptcy and Credit Cards

Chapter 7 bankruptcy allows you to discharge most of your unsecured debts. This is why it is often referred to as “fresh start” bankruptcy. However, the process of filing for Chapter 7 bankruptcy can have a significant impact on your credit cards.

When you file for Chapter 7 bankruptcy, your credit card accounts will likely be closed by the credit card companies. This is because credit card companies view bankruptcy as a high-risk situation and want to limit their potential losses. Additionally, once you file for bankruptcy, you must stop using your credit cards, as any new charges incurred after the filing date will not be discharged.

Remember that even though your credit card accounts may be closed, you are still responsible for paying any outstanding balances not discharged in the bankruptcy. You may still be liable for those debts if you have any secured credit cards or co-signed credit card accounts.

Chapter 13 Bankruptcy and Credit Cards

Chapter 13 bankruptcy allows you to restructure and pay off debts over three to five years. In this case, you may be able to keep some of your credit cards open, but certain conditions must be met.

If you have credit cards with balances that are current and not in default, the credit card companies may allow you to continue using those cards as long as you continue making the required minimum payments. However, if you have credit cards with delinquent balances or accounts in default, the credit card companies may choose to close those accounts.

It is crucial to note that even if you can keep some of your credit cards open during a Chapter 13 bankruptcy, your credit limits may be reduced, and you may face higher interest rates or fees.

Rebuilding Credit After Bankruptcy

Regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy, it is likely that your credit score will take a significant hit. However, this doesn’t mean you will not be able to rebuild your credit.

After your bankruptcy case is discharged, you may be able to apply for new credit cards or other types of credit. However, it is important to be cautious and only apply for credit products that you can realistically manage. Building credit after bankruptcy takes time and discipline, but it is possible.

Some of the strategies for rebuilding credit after bankruptcy include:

• Secured credit cards: One effective strategy for rebuilding credit after bankruptcy is to apply for a secured credit card. A secured credit card requires you to make a refundable security deposit, which becomes your credit limit. This deposit acts as collateral for the credit card issuer, reducing their risk of lending to someone with a poor credit history.
• Become an authorized user: Another strategy to consider is becoming an authorized user on someone else’s credit card account. This involves having a family member or friend with good credit add you to their credit card account as an authorized user. The account’s payment history will then be reflected on your credit report, potentially helping to improve your score.
• Credit-builder loans: Credit-builder loans, also known as fresh start loans or credit-builder accounts, are designed specifically for individuals looking to rebuild their credit after a financial setback like bankruptcy. These loans involve borrowing a small amount of money, typically a few hundred dollars, which is held in a secure account while you make monthly payments.

You Can Count on Our Legal Professionals in Arizona

The experienced attorneys at Eric Ollason Attorney at Law are here to guide you through bankruptcy and provide valuable advice on rebuilding your credit afterward. Contact us today at (520) 500-8472 to schedule a consultation and take the first step toward a fresh financial start.