The Bankruptcy Alphabet – C is for Credit Card Tips

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For most of my clients, credit card debt is the biggest unsecured debt they have. So I decided to dedicate “C” in my bankruptcy alphabet to Credit Card tips.

1 – Once you’ve realized your debt problems have gotten over your head, stop using credit cards. Using credit cards when you have no intention of repaying the debt is the very definition of fraudulent use. If you decide to file bankruptcy, your recent purchases may be scrutinized for fraudulent behavior and possible nondischargeability actions. Spending $100 on food or gasoline is going to look a lot different than spending $1000 on a new plasma screen TV. Rather than trying to justify your purchases after the fact, just stop using the cards once you see that you won’t be able to repay the debt. Start getting in the habit of using debit cards or paying cash for your living expenses.

2 – As soon as you decide to file for bankruptcy, stop making payments on all of your credit cards. Assuming you file a Chapter 7 or Chapter 13 bankruptcy, any money you pay the credit card companies is just throwing good money after bad. Instead of paying $50 toward the interest and late fees from 8 months ago, use that $50 to buy groceries or pay your utility bill. Don’t fall into the trap of paying one card off so you can keep using it after the bankruptcy. The major banks subscribe to services that let them know when their customers file bankruptcy. If you have a credit card with them, most banks will cancel that card immediately, whether or not you owe anything on it. If you don’t owe anything on the card, the bank may be more willing to give you another card shortly after you receive your discharge, but they’re still going to cancel the existing card. Paying off a card prior to filing bankruptcy just to ensure you can get another card later is a poor financial decision in virtually all cases. See #4 below for the reasons why.

3 – When you file your bankruptcy case, be sure to disclose all of your credit card accounts to your attorney. Failing to list your favorite card with your other debts isn’t going to keep it out of the bankruptcy. If you owe money on that Bank of America card, federal law requires you to disclose it. Even if you don’t owe anything on it, you should let your attorney know about the card so he or she can advise you on the proper way to handle the card in your particular situation.

4 – You’ll likely get credit card offers within 6 months of filing bankruptcy. After all, the banks know that you won’t be eligible for another bankruptcy discharge for 4-8 years, so they see you as a pretty low-risk customer. Taking one of these offers isn’t necessarily a bad thing, as long as you follow two simple rules: Only take a card with no annual fees, and always pay your bill in full and on time. This will help you rebuild your credit without causing you to pay interest or late fees on your purchases. Keep in mind that applying for credit cards shortly after your bankruptcy discharge is a risky choice. You’ve just emerged from bankruptcy debt-free. Are you sure you want to dive back into the credit card trap?

Share your own credit card tips in the comments below!

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “C.”

Cars – by San Francisco Bankruptcy Attorney, Jeena Cho
Celebrity Bankruptcy Filings – by Wisconsin Bankruptcy Lawyer, Ryan Blay
Chapter 7 – by Marin County Bankruptcy Attorney, Catherine Eranthe
Chapter Choice – by Ormond Beach, Florida Bankruptcy Attorney, Lewis Roberts
Chapter of Relief – by Taylor Michigan Bankruptcy Attorney, Christopher McAvoy
Cheap Bankruptcy – by Houston Bankruptcy Attorneys, Busby & Associates
Check your Bills – by Columbus, Ohio Bankruptcy Lawyer, Athena Inembolidis
Claims – by St. Louis, Missouri Bankruptcy Attorney, Nancy Martin
Collection Agencies – by Jacksonville Bankruptcy Attorney, Monica D. Shepard
Competence and Compassion – by Philadelphia Suburban Bankruptcy Lawyer, Chris Carr
Conduit Mortgage Payment – by Westlake Ohio Bankruptcy Attorney William Balena
Conversion – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Cosigner – by Cleveland Area Bankruptcy lawyer Bill Balena
Costs – by Miami bankruptcy Attorney, Dorota Trzeciecka
Counseling – by Northern California Bankruptcy Lawyer, Cathy Moran
Cramdown – by Colorado Springs Bankruptcy Attorney Bob Doig
Cramdown – by Oahu Bankruptcy Attorney, Stuart Ing
Cramdown – by Metro Richmond Bankruptcy Attorney, Mitchell Goldstein
Credit Card Creep – by Pittsburgh Bankruptcy Attorney, Shawn Wright
Credit counseling – by Los Angeles Bankruptcy Lawyer, Mark J. Markus
Credit counseling – by Daniel J. Winter, Chicago Bankruptcy Attorney
Credit counseling – by Chicago Bankruptcy Attorney, Kyle A. Lindsey
Credit counseling – by Birmingham Bankruptcy Attorney, Elizabeth Johnson
Credit Unions & Cross Collateralization – by Milwaukee Area Bankruptcy Attorney Ryan Blay
Creditor – by New York Bankruptcy Lawyer, Jay S. Fleischman
Creditor – by St. Clair Shores MI Bankruptcy Attorney, Kurt O’Keefe
Creditors – by Livonia Michigan Bankruptcy Attorney, Peter Behrmann
Creditors Meeting – by Philadelphia Bankruptcy Lawyer, Raymond Kempinski

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5 Comments

  1. I am 69 years old with excellent credit. I presently owe about $35,000 total on 4 credit cards. But I have had some tough times since the economy crashed, it has hit us hard in Montana. I have always paid my cards monthly, but due to several problems I may have a real hard time paying off any of my credit cards.

    I have my home in a reverse mortgage with Wells Fargo Bank. The reverse mortgage is for about $295,000 the current value may be about $375,000. I have a 2006 Hyundai, 2004 Ford 250, and a $38,000 boat, all paid for. I have no other property in the U.S. I have most of my property in Costa Rica. My wife also has great credit and I wouldn’t want to affect her credit. Can I put the paid off items in her name and file bankruptcy on my own?

    • Thanks for reading.

      My best advice is to contact a local NACBA attorney in Montana. You can find someone close to you at this website: http://www.nacba.org/Consumers/FindYourAttorney.aspx

      Depending on the exemptions available to you, you may be able to retain all of your assets in a Chapter 7 bankruptcy. Alternatively, a Chapter 13 would allow you to pay the value of any non-exempt equity over 3-5 years to keep your assets.

      You are free to file individually without your wife, but be sure to speak to your local attorney before transferring any assets. Transferring assets to a third party to put them out of the reach of your creditors may be an avoidable fraudulent transfer.

  2. Thank you for the information. Unfortunately my family had to file for bankruptcy recently. I hadn’t heard what you discussed in your second point. It seems like an opportunity to save and start recovering. I will definitely keep this as a reference.

  3. I didn’t realize that credit card debt was one of the main types of unsecured debt that people have. It’s a great tip to stop using credit cards when you realize you have debt problems. I would think that consulting with someone about how to pay off your credit card debt would be a smart move, also.

    • Trying to pay off the cards to avoid bankruptcy is something most attorneys will discuss with clients. But it’s usually best to talk with an attorney who can discuss ALL of your debt-relief options, rather than a debt-settlement company that can only do one thing.

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