Can You Still Access Credit After Filing Bankruptcy? What Pennsylvania Consumers Should Know
It’s normal to wonder what’s going to happen to your credit cards if you’re thinking about filing for bankruptcy, particularly your commonly used credit card that you have paid down to a zero balance before you file bankruptcy. The question is whether you continue to use your credit card post-bankruptcy while your other debts are discharged.
Some people hope they’ll be able to keep using their zero balance credit card, while others worry they’ll never qualify for credit again post-bankruptcy. The reality lies somewhere in the middle. Understanding how bankruptcy affects your credit card use can help you avoid costly mistakes and make informed decisions. Read on!
What Happens to Your Credit Cards When You File for Bankruptcy?
Filing for bankruptcy triggers something called an automatic stay. This is a legal pause on most collection efforts, including lawsuits, wage garnishments, and nonstop collection calls. At the same time, credit card companies may close your accounts once they learn of the filing. Some clients have reported that their credit cards closed out their prior pre-petition account number and issued a new account number for post-petition charges incurred to keep their credit card open.
Even credit cards with a zero balance may not be safe. Many national credit card lenders see a bankruptcy filing as a risk, so it’s pretty common for them to cut you off, just to be safe. Many major credit card companies receive their internal policy advice from large national law firms, which appear to overly err on the side of caution, that it is best practice to close the credit card account even with a zero balance.
This decision is made to avoid any potential or theoretical issue of violating the automatic stay to collect on a pre-petition debt. A violation of the automatic stay carries various penalties under the law including ta creditor being pay a debtor’s legal fees for pursing a stay violation legal cause of action.
Because of this, many people find that their zero balance credit cards become unavailable soon after filing for bankruptcy.
Can You Keep Using Your Credit Cards?
After you make the decision to file bankruptcy, but before you file you officially file your bankruptcy petition, you should not use your credit cards that you intend to have fully discharged. Using a credit card after you start the bankruptcy process can lead to legal and financial complications. New charges while seeking debt relief may be viewed as debt incurred without the intention or ability to repay it.
This may further delay your ability to file bankruptcy, as there a legal presumptions depending on what was purchased, within 70 to 90 days before you file bankruptcy for charges immediately incurred are non-dischargeable.
Courts and creditors closely examine transactions made shortly before and after a bankruptcy filing. Large purchases, cash advances, or luxury spending can raise concerns and potentially lead to disputes over whether certain debts should be discharged.
Are There Exceptions?
Should you file a Chapter 7 case, it only impacts your pre-petition debts which are subject to the bankruptcy discharge. All post-petition debts incurred are not subject to your discharge and remain your personally liability. For example, if a credit card company continues to let you utilize their credit card that you have obtained pre-petition, then you remain liable for any post-petition debts you charge.
In a Chapter 13 payment plan cases, you may need to a Motion with the Bankruptcy Court to obtain post-petition financing for secured loans like mortgage, auto loans, or to pledge personal property such as business equipment as collateral. This may require a Court Hearing for the Judge to enter an Order approving the post-petition financing.
If there is no objection from the Chapter 13 Trustee, who administers your confirmed repayment plan, to incurring a new debt, then some creditors will accept a “no position” letter from your Trustee to approve the post-petition loan. This is common practice for debtors who need a new vehicle during the 3 or 5 year lifetime of your Plan and your pre-petition vehicle is no longer operational.
Every bankruptcy case is different, and you should never assume the rules. The best thing to do is always to get a clear answer from a bankruptcy lawyer who understands your unique financial situation.
Rebuilding Credit After Bankruptcy
Bankruptcy can affect your credit score, but it doesn’t mean you can’t rebuild your credit. Many people start rebuilding their credit as soon as a bankruptcy discharge is entered.
A common option for many is secured credit cards, which just means you make a deposit as collateral. Other ways to rebuild your credit include;
- Making loan and credit card payments on time
- Continue timely paying on secured debts, such as mortgages and auto loans, that you intend on keeping,
- Becoming an authorized user
- Keeping credit balances low
- Avoiding unnecessary debt
- Creating a realistic monthly budget
- Monitoring your credit reports for errors and inaccuracies
While getting new credit might be more difficult for a while, as you show responsible financial habits, you can qualify for credit products again.
If you are planning to file for bankruptcy, understanding the rules about credit cards can help you avoid costly mistakes and put yourself in a stronger position for financial recovery.
Contact Us for Legal Help
If you are struggling with overwhelming debt and considering bankruptcy in Pennsylvania, experienced legal guidance can make all the difference. Contact our skilled Lehighton & Carbon County bankruptcy attorney at The Law Office of Adam R. Weaver, Esq., today to discuss your options, protect your rights, and take the first step toward a more stable financial future.
