Keeping a Credit Card in Chapter 7 Bankruptcy

Don't plan on emerging from Chapter 7 bankruptcy with an available credit card. Find out why excluding a credit card in bankruptcy isn’t a viable option.

By , Attorney · University of the Pacific McGeorge School of Law

Many people who plan to file for Chapter 7 bankruptcy would like to keep a credit card for travel arrangements and work expense purposes. Although it's possible, it's not likely. Here are some of the factors that will impact whether you can keep a credit card in Chapter 7 bankruptcy:

  • how much you owe on your credit card when filing for Chapter 7
  • whether you agree to repay ("reaffirm") your credit card balance after Chapter 7, and
  • if you take steps to rebuild your credit after bankruptcy.

If you haven't filed yet, take a moment to learn how bankruptcy works and what you should know about bankruptcy. And check out our quick ten-question bankruptcy quiz—it can spot potential bankruptcy issues fast.

Keeping or "Excluding" a Credit Card With a Zero Balance in Chapter 7 Bankruptcy

You must list all your debts when filing for bankruptcy without exception. So "excluding" or not reporting an active credit card account you'd like to keep after bankruptcy isn't an option. But there might be a loophole.

You don't have to list debts you might owe in the future, so technically, you wouldn't have to list a credit card account with a zero balance (however, not everyone agrees on this point, and you should always fully disclose all aspects of your finances). And if you don't have to list it, the credit card company won't receive notification of the bankruptcy case.

Sounds good, right? If the credit card company doesn't know about your bankruptcy, you'll keep the card.

Although that's the theory, it rarely turns out that way. Here's why.

The Chapter 7 Bankruptcy Trustee Can Recover Credit Card Payments Using a "Clawback" Power

Keeping a credit card by paying back the balance before bankruptcy is unlikely to work because the Chapter 7 bankruptcy trustee appointed to your case will likely unwind the transaction by demanding that the creditor return the funds. And yes, the trustee will know about the payment. Here's how.

Although you can choose who you pay money to in everyday life, it's not allowed when filing for bankruptcy. Because the bankruptcy process allows for a fair distribution of funds to your creditors, you must report any significant amounts paid to creditors during the 90 days before your bankruptcy filings in your bankruptcy paperwork.

These payments are known as "preferential payments" because by picking and choosing which creditors you'd like to pay, you're "preferring" or favoring one creditor over another.

The trustee will take steps to recover or "claw back" the preferential payment and redistribute the money to your creditors according to bankruptcy payment rules. Learn more about "priority payment" rules the trustee must follow.

Keep in mind that we strongly discourage timing a bankruptcy filing to avoid the reporting period because it could be considered fraudulent conduct. You'll also want to learn when running up credit cards before bankruptcy becomes a fraud.

The Credit Card Company Will Look for a Chapter 7 Bankruptcy Filing

Large creditors regularly screen cardholders' credit reports, and when they discover a bankruptcy filing, they close the cardholder's account. So paying off a credit card balance you could discharge in Chapter 7 would likely be a waste of money.

Agreeing to Repay Credit Card Debt After Chapter 7 Bankruptcy

Theoretically, if you're willing to owe the balance after your Chapter 7 case closes, you might be able to keep a credit card account open. Here's the theory and why, like other approaches, this is unlikely to work.

When a bankruptcy filer wants to keep a relationship intact with a creditor, they enter into a "reaffirmation agreement" contract to repay what they owe. A reaffirmation agreement is a new contract in which the filer agrees to pay a debt that would otherwise be "discharged" or wiped out in bankruptcy. Chapter 7 filers who don't want to lose a car needed for work, school, doctor's appointments, and other errands, often use reaffirmation agreements to keep a vehicle needed for transportation.

But again, utilizing a reaffirmation agreement to keep a credit card is unlikely to work.

Judges don't like circumventing bankruptcy's purpose of erasing debt and won't do it lightly. The court will review the reaffirmation agreement at a hearing and won't approve it unless it's in the filer's best interest.

While everyone needs a car, a credit card isn't necessary, and keeping one could put you in the same overburdened financial situation you were trying to escape by filing for bankruptcy. So unless you get something tangible out of it, such as a car, asking the court to approve a reaffirmation agreement probably wouldn't be successful.

If a bankruptcy attorney represents you, you can avoid a reaffirmation hearing. But the bankruptcy lawyer would need to attest that the reaffirmation is in your best interest. Because the lawyer would know the court's position, it would be unusual for the lawyer to sign the agreement.

Can You Keep Any Credit Cards After Bankruptcy?

Whether or not you can keep a credit card open after bankruptcy will depend on the creditor. However, the chances of a creditor agreeing to keep a credit card account open after a Chapter 7 bankruptcy are slim, but it could happen.

Sometimes smaller creditors—such as veterinarian health care accounts—will allow a fully paid account to stay open. But, because creditor policies change regularly, you'll want to check with your bankruptcy attorney about the most recent trends.

Getting a Credit Card After a Chapter 7 Bankruptcy

This option is likely your best. Many people can repair credit quickly after bankruptcy and are offered credit lines soon after receiving a bankruptcy discharge. You can also explore other ways of rebuilding credit, like getting a secured credit card or asking someone to cosign for a traditional credit card.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

More Bankruptcy Information

Bankruptcy Forms and Document Checklist

Schedule E/F: Creditors Who Have Unsecured Claims

Cover Sheet for Reaffirmation Agreement

Chapter 7 and 13 Bankruptcy Form List

Bankruptcy Document Checklist

More You Might Like

Running Up Credit Cards Before Filing Bankruptcy: Is it Fraud?

How long before filing for bankruptcy are you supposed to stop using credit cards?

Rebuilding Your Credit After Bankruptcy

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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