Keeping a credit card in bankruptcy

credit cardKeeping a credit card in bankruptcy is more challenging than you might guess. Before breaking this down any further, we should distinguish credit cards from ATM/debit cards that are connected to your checking and savings accounts. ATM/debit cards are not closed by the banks like credit cards. The only exception is if you have a negative balance when you file bankruptcy.

 

Now back to keeping a credit card.

If you owe the credit card company any money, even a penny, you must list them as a creditor in your bankruptcy. In bankruptcy, every debt to every person and company must be listed, no exceptions. Omitting a credit card or anyone you owe money is committing perjury. If you owe the credit card anything, it will be listed, and the debt discharged through the bankruptcy.

Now let’s assume you have a credit card with no balance, i.e., you owe them $0.00 on the date of filing bankruptcy. That probably won’t work because, as far we can tell, every major credit card and bank pays for a service to screen every single bankruptcy filed for a social security number. That same social security number was used to get you that credit card you are trying to keep. The credit cards and banks match your social security number and know almost instantaneously if you filed bankruptcy. Regardless of whether you owe the credit card $20,000 or $0, the policy is to close the account.

A word of caution to those paying down the balance to zero on a credit card before filing in hopes of keeping the card. An important part of a bankruptcy filing is a series of disclosures that reveals transactions and payments. There is one section called “preferences.” This requires disclosing all payments made to any creditors in the previous 90 days that totals more than $600 in the aggregate. For example, three monthly payments in the previous 90 day of $200 each month would aggregate and total $600.

The problem with preferences are that in some cases the trustee in a Chapter 7 case can recover these payments. In some sense, it’s not your problem that your credit card has to cough up the money. But this may cause your case to become an “asset case,” i.e., now the trustee has assets to recover and give out to your creditors because of this preference. You have potentially opened a can of worms, and the trustee will look harder at your other assets and transactions. And your bankruptcy case can easily remain open for a year or more for assets to be administered.

Bottom line, don’t complicate matters more than needed, and plan on all credit cards being cancelled, regardless of whether your credit card has balance or not.