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Bankruptcy ultimately cancels, or discharges, a variety of consumer debts including unpaid credit card balances. But it also typically leads to cancellation of your credit card accounts, even those with no outstanding balance at the time of the bankruptcy filing. There are rare instances in which you may be able to keep a credit card after a bankruptcy, but that option largely hinges on the policies of your credit card issuer.
What Happens to Your Credit Cards After Bankruptcy?
Whether you file Chapter 7 bankruptcy, in which certain assets are sold to satisfy your debts, or Chapter 13, which has you make regular payments to compensate creditors, credit card accounts are affected in much the same way.
Accounts With Balances Must Be Listed as Creditors
One of the first requirements in any bankruptcy proceeding is that you furnish the court with a list of all your creditors. The list must include all credit cards, including those with no balances. Everyone you owe money, including all issuers of credit cards with unpaid balances, will be notified of your bankruptcy filing. Virtually all card issuers will cancel your account upon receipt of such a notice.
Cards With Zero Balances Will Likely Be Canceled
A credit card with no balance isn't a debt, so the bankruptcy court may not notify the issuer, but there's a good chance that the card will be canceled anyway. Bankruptcy filings are public records and are listed on credit reports compiled by the national credit bureaus (Experian, TransUnion and Equifax). Credit card issuers routinely monitor customers' credit reports and learn of bankruptcy filings that way. For many lenders, a bankruptcy on your credit report is grounds for canceling your account, even if they don't stand to lose money through discharge of unpaid bills.
You May Be Able to Reaffirm Credit Card Debt in Bankruptcy (but Probably Shouldn't)
If you file bankruptcy, federal law allows you to exempt certain debts from being discharged—a procedure known as reaffirming the debt. This is usually used to allow a bankruptcy filer to keep their house or car by maintaining mortgage or auto loan payments, but in theory it can apply to any debt, including unpaid credit card balances. Reaffirming credit card debt may not be possible in practice, nor may it be a good idea for reasons, including the following:
- If the goal of reaffirming a credit card debt is to keep an account open after bankruptcy, there's a good chance it won't work because, as noted above, there's a good chance the issuer will close it anyway.
- Unlike installment debt with a set payments schedule, credit card debt can snowball quickly thanks to compound interest and potentially low minimum required payments. Due to those factors, future payment amounts can be hard to predict and manage.
- You must convince the court that you can afford to repay any reaffirmed debts and that it's in your best interest not to discharge the debt in question. Judges seldom see any benefit in retaining credit card debt.
- In Chapter 13 bankruptcy, eligible debts are discharged only after a three- to five-year period of making monthly payments to your creditors. During that period, a credit card won't be of much use anyway, because you must get permission from the court before taking on any new debt, including credit card charges. Except for matters of life and limb such as a medical emergency, borrowing is limited to a total of $1,000 over that period.
What About Authorized-User Accounts?
If you are an authorized user on a credit account, you are not legally responsible for any balance on the account and you do not have to include the card in the list of creditors you submit to the bankruptcy court. The court won't notify the issuer of your bankruptcy, and the account owner's credit standing will not be affected by your bankruptcy. If you owe your employer reimbursements for charges you made on a company card, however, you must list the company as a creditor and they will be notified of your bankruptcy.
If an authorized user on an account you own files bankruptcy, there will be no indication of that on your credit report. Any unpaid balances they may have run up are your responsibility, however.
Does Filing for Bankruptcy Clear Your Credit Card Debt?
Yes, unsecured consumer debt, which includes unpaid credit card balances, is subject to discharge in bankruptcy.
Do I Have to List All My Credit Cards When I File Bankruptcy?
Yes, you must list all your open credit card accounts as creditors, even those with zero balances. The bankruptcy trustee assigned to your case needs to know about them because they typically review activity on all accounts in the months preceding your bankruptcy filing to check for "preferential payments." If you made disproportionately high payments to a single creditor in the lead up to bankruptcy, the trustee can order that creditor to give back that money so it can be distributed more evenly among all your creditors.
Can You Keep Any Credit Cards After Filing for Bankruptcy?
It is legally possible to keep a credit card after bankruptcy if it has no balance at the time of your bankruptcy filing and the issuer chooses not to cancel it. Those instances are rare, as many credit card contracts call for card cancellation in the event of bankruptcy, even if there is no monetary loss on the account.
The Bottom Line
While it's unlikely you'll be able to keep a credit card after bankruptcy, you will be able to get a new card eventually—and perhaps sooner than you'd think. A Chapter 7 bankruptcy remains on your credit report for 10 years from the filing date, and a Chapter 13 persists for seven years, but their negative impact on your credit scores lessens over that time.
Many bankruptcy filers start receiving credit card offers within a year or two of filing. Those offers typically are for cards with relatively high interest rates and modest borrowing limits, but using them responsibly can help you rebuild a positive payment history, improve your credit scores and eventually help you qualify for more attractive credit offers.
You can even jump-start the credit recovery process more quickly with a secured credit card. With a secured card, you put down a cash deposit which usually serves as your credit limit, and which the lender can keep if you stop making payments.
Making purchases and maintaining timely payments on a secured credit card account benefits your credit history and can help improve credit scores bruised by bankruptcy. To keep tabs on your credit health, Experian credit monitoring is a convenient way to be alerted to any changes to your credit report and credit score for free.
