Can I Get a Secured Credit Card While in Chapter 13?

Managing finances during Chapter 13 bankruptcy requires careful consideration. Chapter 13, known as a wage earner’s plan, allows individuals with consistent income to propose a repayment plan for their debts, typically spanning three to five years. During this period, the court oversees financial activities, and debtors must adhere strictly to their approved plan. This process provides a structured path to financial stability but limits new debt. Within this structured environment, secured credit cards may emerge as a potential tool for managing certain financial needs.

Secured Cards in Chapter 13

A secured credit card requires a cash deposit as collateral for the credit line. This deposit typically determines the credit limit, reducing the risk for the card issuer. These cards help individuals establish or rebuild credit.

For someone in Chapter 13 bankruptcy, a secured card can be a practical financial instrument. It offers an opportunity to demonstrate responsible credit behavior, as timely payments are reported to the major credit bureaus. This reporting can contribute positively to a credit score over time, which is beneficial for financial rebuilding. Furthermore, a secured card provides a means for small, planned expenses, offering a limited spending tool without the risk associated with unsecured credit.

The security deposit makes secured cards accessible to those with limited credit, including individuals in bankruptcy. The deposit is typically returned when the account is closed and paid in full, or if the card graduates to an an unsecured product. Using a secured card responsibly can help meet the goal of re-establishing financial credibility within the framework of a Chapter 13 plan.

Seeking Court Approval

Obtaining new credit, including a secured credit card, during Chapter 13 bankruptcy generally requires permission from the bankruptcy court or trustee. This involves filing a “Motion to Incur Debt.” This ensures new financial obligations do not jeopardize the repayment plan.

To prepare a motion, a debtor needs to gather specific financial information and documentation. This includes recent proof of income, such as pay stubs for the last 60 days, and an updated list of monthly expenses. Details about the proposed secured card, including the amount of the required deposit, the potential credit limit, and any associated fees like annual fees, must also be provided. The debtor must clearly explain the reason for needing the card and how it aligns with their financial management and the approved bankruptcy plan.

The court or trustee evaluates the request based on the necessity of the new debt and its impact on the repayment plan. They consider if the debtor can manage the additional payment without disrupting existing obligations. The procedural steps involve filing the motion with the bankruptcy court, serving notice to the trustee and creditors, and potentially attending a hearing if there are objections or further questions. While hearings are not always required, the process can take several weeks for a decision to be rendered.

Applying for a Secured Card

Once court approval has been successfully obtained, the next step involves applying for a secured credit card with a financial institution. This process is similar to applying for any other credit card. Lenders will require certain personal and financial information to process the application.

Applicants will need to provide identification, such as a Social Security number, and details regarding their income and employment. The security deposit, which determines the credit limit, must also be provided. Minimum deposit amounts often range from $100 to $500. This deposit can sometimes be funded directly from a linked bank account during the application process.

Applications can be submitted through various channels, including online portals or in-person at bank branches. After submitting the application and the security deposit, the financial institution reviews the information. Upon approval, the card will be issued, and the account can be managed like a standard credit card, with regular statements and payment due dates. While court approval addresses the bankruptcy requirement, the card issuer still has its own underwriting criteria for approval.