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Should I Get A New Credit Card Before Filing Bankruptcy?

January 31, 2013

Bankruptcy is a powerful financial tool to get you back on the right path. It is a fresh financial start, a new beginning free from oppressive debt. Despite the tremendous benefits of restructuring debt, some people want a head start on the recovery from bankruptcy. They want to rebuild their credit quickly and get on with their lives. There is nothing wrong with a head start as long as it is within the rules.

Obtaining a new credit card before filing bankruptcy is a gamble. The basic rule is that you must list all of your debts and your creditors on the bankruptcy schedules. A new credit card with a balance owed is a debt that must be reported to the bankruptcy court. Additionally, debts incurred just before filing are often non-dischargeable. In other words, the new creditor receives notice of your bankruptcy, it closes your account, and your debt is likely excluded from discharge.

However, there is a legal loophole. If you have an open credit account, but do not owe anything to the creditor, then it is not a debt and does not have to be disclosed. Also, the credit card company is not a creditor for bankruptcy purposes. It is important to recognize that some card issuers run periodic bankruptcy checks on their customers. Your credit card company may discover your bankruptcy and close your account even though it is not included in the bankruptcy case. Obviously, a creditor included in your bankruptcy will close all open accounts, regardless of the balance.

During a Chapter 13 case the debtor is expressly prohibited from using credit. Use of a new credit card is a violation of the terms of your Chapter 13 case and has serious consequences, including dismissal of your case before discharge.

If you intend to use your new credit card after bankruptcy, you should wait until after your case closes. Then use your card regularly, and make your payments on-time every month. Keep a very small balance on your account (like $5.00). This ensures that the card company reports your use and payments every month.

Personal credit is a fact of life, but it should not be a way of life. Re-establishing your credit takes time and persistence. Credit is available after your discharge, but at higher rates. If you are considering a new credit card before filing bankruptcy, speak with your bankruptcy attorney for guidance.


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