What Happens to Your Credit Cards When You Declare Bankruptcy?
Filing for bankruptcy can be a daunting step if you are struggling financially. While this process can help you start over if you have overwhelming debt, there are also negative consequences. To help you get back on your feet, you may think about using credit cards to build credit and make necessary purchases. However, you can’t count on your current credit accounts to assist you.
Who Should File?
Declaring bankruptcy shouldn’t be your first line of defense against financial difficulties. Instead, this should be your last resort after exploring other options. However, if you have crippling debt with no chance of paying it off and catching up, bankruptcy may be the right choice. You may face financial woes due to a job loss, a serious illness or accident, or after a divorce. An experienced bankruptcy attorney can help you decide whether this is the best course. Your lawyer will review your debt load and will walk you through the process.
What Happens Next?
A lawyer, like a Chapter 7 bankruptcy lawyer from the Law Offices of Ronald I. Chorches, will help you build a file that contains all the essential information about your outstanding debts. You must list all of your debts with total accuracy and honesty. A bankruptcy trustee will then evaluate this information before beginning the proceedings. With Chapter 7 bankruptcy, the trustee will liquidate your assets to pay the debts. With Chapter 13 bankruptcy, you may be able to keep your property and work out a payment plan with your creditors.
About Those Credit Cards
Your credit card debt will be listed among your outstanding debts. The advantage of filing bankruptcy, in this case, is that these debts will be wiped out. However, the credit card companies will cancel your cards and close your accounts in most situations. An exception may be if you reaffirm the balance, meaning you’ll sign another contract that you are responsible for the debt.
A Word of Caution
Canceling your credit card accounts can be a blessing for your finances. Many people are getting in heavy debt because of undisciplined budgeting and using credit cards too frequently. If you are allowed to keep your card, you may be tempted to fall into the same traps as before. However, wisely managing a credit card can also help you to rebuild your credit.
Be prepared to lose your credit cards if you file for bankruptcy. If you are able to keep your accounts, work with your attorney to develop a budget and to use the cards prudently.