Dear Bankruptcy Adviser,
I'm down to one income with $53,000 in credit card debt. My mortgage is still up-to-date, but paying credit cards and high out-of-pocket medical costs have drained me. I plan on filing for bankruptcy. My wife wants to maintain one credit card for emergencies; it has a balance with available credit. Will the credit card company allow us to keep this card or will they close the account when I file? What do you recommend to use for emergencies?
-- Gerry
Dear Gerry,
Many clients choose not to tell me when they leave out a creditor. The client believes that after bankruptcy, he or she will never have access to credit again. Therefore, one card must be kept out for emergencies.
There are various reasons not to leave a credit card out of your petition. You ought to include everyone and discharge, or eliminate, all debts in the bankruptcy. Here are some of the main reasons:
- You cannot prefer one creditor over others. If your mother lent you $1,000, then she ought to be listed in the petition. She is a prefiling creditor and ought to be included in your list of creditors.
- Most major creditors review your credit annually to determine whether you are eligible for additional credit, new promotions, etc. When the creditor sees that you filed bankruptcy, access to that card will likely end.
- Most credit card accounts are owned by or serviced by the same company, meaning you could have a creditor listed in your petition that also handles the credit card not listed. This will mean that your emergency card will be shut down without you knowing it, and you will have to pay to add that prepetition creditor into your bankruptcy petition. Worse, you might pay on the card after the bankruptcy filing and after the card is closed because you failed to list it.
- Some creditors get universal notification of all bankruptcy filings. Clients have told me that access to a card was shut down even though it was not included in the petition and they had no other debt with that lender.
- Cards without balances may be shut down. Some creditors will close out the account even though you owe them nothing.
Once your case is over, you will receive more credit than you ever imagined. Yes, that's right. Creditors believe that you have a "taste for credit" and therefore will send you new offers post-filing. While the interest rates will be high, if you don't carry a balance then you will never pay finance charges again.
These are a few of the main reasons to list all creditors. You will see that life after bankruptcy is not as awful as people make it out to be. Give yourself the opportunity for a complete fresh start and work to rebuild your previously perfect credit rating.
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