A Compassionate,
 Full Service Law Firm

Does bankruptcy mean that a filer will lose their credit cards?

On Behalf of | Sep 29, 2023 | Credit Card Debt/Medical Bills

A successful bankruptcy filing can significantly improve someone’s financial circumstances. Bankruptcy can reduce how much someone has to pay toward debt every month and protect their current assets and future income from collection efforts. Those who have acquired a lot of debt all at once because of an emergency or who suddenly found themselves with an unbalanced budget due to a job loss can potentially benefit from bankruptcy as they seek to improve their financial circumstances.

However, many people feel anxious about the idea of filing for bankruptcy, possibly because they believe that it will only complicate their financial circumstances. If they rely on revolving lines of credit or credit cards to balance their budgets, for example, those in difficult financial positions may worry about how bankruptcy will affect those financial resources like credit cards.

Lenders usually close accounts at the time of filing

There are strict rules limiting the collection activity that companies can engage in after someone files for bankruptcy. Violations can be very expensive, so businesses often do whatever they can to identify those filing for bankruptcy and avoid contacting them. Most credit card lenders receive same-day notice from the credit bureaus about someone’s bankruptcy filing. They will typically close or freeze that individual’s credit cards the same day or as soon as possible. Doing so protects them from allegations of abusive collection practices and ensures that someone who has already affirmed they cannot pay their debts will not continue to accrue a higher balance.

Unfortunately, that means that those pursuing bankruptcy will have to adjust to life on a much tighter budget in the short-term future. Thankfully, after someone completes the bankruptcy process and obtains their discharge, they will typically become eligible for certain credit cards again quickly. Lenders that require security deposits, charge annual fees or collect higher interest rates often make offers to those who have just completed bankruptcy. People can potentially have new credit cards to act as a financial cushion within a month or two of their discharge. Better cards will usually become available within a few years.

For many people, the decrease in personal debt that accompanies a successful bankruptcy will have a far greater value than the short-term frustrations and challenges generated by the temporary loss of credit cards. Understanding the impacts of a bankruptcy filing can help individuals to more accurately assess whether pursuing this course of action is likely to be in their best interests overall or not.