debt

Close credit card before bankruptcy filing?

Justin HarelikDear Bankruptcy Adviser,
I would like to consider options, but before I really organize/prepare myself emotionally for the jolt of bankruptcy, I have a question. I would like to know if I close a credit card account with a balance voluntarily, can it be included later in a bankruptcy filing? In other words, would I be shooting myself in the foot because I closed the account in hopes I could make arrangements to honor the indebtedness with a different schedule? (If I) then later find I really need to file bankruptcy -- did I lose that privilege?
-- Debra

Dear Debra,
Excellent question, but you cannot pick and choose creditors to list in a bankruptcy.

Student loans and delinquent income taxes must be listed, even if you are not trying or not able to eliminate them. Delinquent alimony or child support, non-dischargeable income taxes and criminal restitution all must be listed in your bankruptcy schedules even if you can't wipe them out.

Car loans, furniture and jewelry loans, mortgage loans and all other loans secured by collateral must be listed in your bankruptcy even if you intend to keep some or all of these debts.

Even the $1,000 loan you got from generous but cranky Uncle Fred should be included in your list of creditors.

Many of my clients have tried to keep accounts out of the list of creditors. I can't force a client to list any particular creditor since I only can enter in accounts that the client gives to me. In most or all of those cases, the client calls me after the unlisted creditor cancels the card. The client sometimes is upset thinking that I listed the account without his or her permission.

That is not the case. Most creditors do not need to be notified by mail to know that you filed bankruptcy. Many creditors process their payments through one centralized company. GE Money Bank, Citibank and Wells Fargo, to name a few big ones, process the payments for many different companies and not just their own accounts. When the lender is notified of your bankruptcy filing, all accounts are automatically frozen and closed, even those without balances.

In other cases, a creditor will review your credit report routinely in order to offer you more credit or other offers. When its computer program "sees" that you filed bankruptcy, it will close out all accounts automatically.

The only major exception worth mentioning here is credit unions. Credit union accounts can be included in a bankruptcy and still kept after completing the bankruptcy. You must work with the credit union directly once you file the bankruptcy.

Don't worry. You will have plenty of opportunity to re-establish credit after the bankruptcy is over. Some of those creditors listed in your petition may even extend you credit again soon. Don't be emotionally attached to any one creditor. It is not worth it, and remember, they really don't care about you anyway. Move on because they did.

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To ask a question of the Bankruptcy Adviser, go to the "Ask the Experts" page and select "Bankruptcy" as the topic. Read more Bankruptcy Adviser columns and more stories about debt management.

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