Can I Keep My Credit Cards If I File Bankruptcy?

Bankruptcy offers a legal pathway to address overwhelming financial burdens. It provides a fresh financial start by eliminating or restructuring unmanageable debts, allowing debtors to reorganize their finances without ongoing collection pressure.

How Bankruptcy Affects Existing Credit Cards

When an individual files for bankruptcy, the treatment of credit card debt depends primarily on the type of bankruptcy filed. Most credit card debts are unsecured claims, meaning they are not backed by any specific asset or collateral. Unsecured debts are typically discharged in bankruptcy, which legally releases the debtor from the obligation to repay them.

In a Chapter 7 bankruptcy, most unsecured debts, including credit card balances, are discharged. A court-appointed trustee may sell non-exempt assets to pay creditors, but unsecured creditors typically receive little to no payment. Once the debt is discharged, the credit card account is almost certainly closed by the issuer.

Chapter 13 bankruptcy involves a court-approved repayment plan spanning three to five years. Credit card debts are included in this plan, and while some portion of the unsecured debt may be repaid, remaining balances are typically discharged upon successful completion of the plan. Regardless of the chapter filed, creditors are notified of the bankruptcy and must cease collection activities.

Treatment of Different Credit Card Types

The type of credit card held significantly influences its treatment during bankruptcy proceedings. Unsecured credit cards, such as standard bank credit cards or store-specific cards, are generally treated as non-priority unsecured debt. These accounts are almost always discharged and cancelled by the credit card issuer.

Secured credit cards, conversely, are backed by a cash deposit provided by the cardholder, which serves as collateral. A debtor might have the option to retain a secured credit card if they continue to make payments and properly address the underlying secured debt. Secured credit cards can be a valuable tool for rebuilding credit after bankruptcy due to their reporting of payment history to credit bureaus.

Reaffirming Credit Card Debt

Reaffirmation is a formal legal agreement between a debtor and a creditor where the debtor agrees to continue paying a debt that would otherwise be discharged in bankruptcy. This agreement essentially creates a new contractual obligation for the debt, making it legally binding even after the bankruptcy case concludes. Reaffirmation is entirely voluntary.

For credit card debt, reaffirmation is generally rare and often not considered advisable, particularly for unsecured accounts. Since unsecured credit card debt usually lacks tangible collateral, there is little incentive to reaffirm it, as doing so re-establishes personal liability for a debt that would otherwise be eliminated. Reaffirmation agreements are more commonly used for secured debts, such as car loans or mortgages, where the debtor wishes to keep the collateral.

A formal agreement must be made before the debt is discharged and filed with the bankruptcy court. The debtor must be fully informed about the terms and implications of the agreement, including whether it imposes an undue hardship. For unrepresented debtors, court approval is often required, with the court assessing if the agreement is in the debtor’s best interest and does not create an undue financial burden. If a reaffirmed debt is later defaulted upon, the creditor can pursue collection actions, including legal remedies, as the debt is no longer protected by the bankruptcy discharge.