Credit cards after bankruptcy. That sounds like a great title for a bankruptcy article, or a credit card article. But like much good literature, let’s start with a poem.
The bane of our existence
The expeditor of our dreams and mortgagor of our future
The sheer mockery of delayed gratification
The destroyer of futures, and punisher of poor decisions
The scapegoat of gratuitous spending of the prodigal
The friend of desperation
The taker of lives
To paraphrase Homer Simpson – credit cards; the cause of, and solution to, all of life’s problems.
It’s probably an established fact that everywhere there are credit cards, there are people struggling with credit cards. Some things in life are just like that. They can be oh so wonderful, but when there’s too much of a good thing, it turns bad. That means people in Arizona towns like Phoenix, Gilbert, Peoria and Surprise are all engaged in the struggle.
Take pizza for example. Is there anything more delicious than pizza? It’s doubtful. But, if you eat a whole pizza three times a day, the wonderment that is pizza slowly transforms into a health hazard, and a detriment to your lifestyle.
Credit cards are no different. In moderation they are terrific. There’s a lot of great things that can be done with credit cards. Let’s take a look of some of the ways credit cards can be a wonderful facet of your economic life.
Tell Me Something Positive About Credit Cards
People with fiscal discipline buy as much as they can with credit cards and then pay off the balance, in full, every month. This means that absolutely no fees are paid at all. You’ve got no interest payments or balance transfer fees. At the same time, you earn cash back from all of that spending. That means a nice, fat check reimbursing 1%, 2%, or even sometimes 3% of what you spent. Can you say “free money?” That’s free money for people in Queen Creek, people in Glendale, and people in Anthem.
Here’s another strategy along the same lines. Some credit cards offer money just for opening a credit card and then offer an additional bonus for spending a certain amount in the first few months. Again, if you pay the balance every month, you’ve got no fees, but you still get that cash-back bonus. “Free money!”
Credit cards are also a great way of bailing you out. Sometimes stuff just happens, and you don’t have the money to pay for it. Root canal? Car accident? Stuck in Mexico? When you don’t have the cash but you need a pile of money like yesterday, a credit card can step in and help. It gets you out of excruciating pain, or an undesired detour in a foreign country. If you are careful when you get out of that mess, you can make extra payments and quickly pay off that balance before you spend too much on interest payments. If you’ve got problems in Tempe, Mesa, Ahwatukee or Cave Creek your credit cards might be just the thing to bail you out.
Credit cards are also darn convenient. Why carry a bunch of cash around when you can just pay with plastic? Every try paying for gas with cash? How about going through the self-serve grocery line? Cash is cumbersome and annoying, at best. And don’t look at that cash through a microscope if you are a Howard Hughes type. You’ll be putting on rubber gloves the next time you pull out your wallet at Taco Bell.
Have you ever tried to make an internet purchase with cash? Do you think you can just mail some cash to Amazon and then have them send you your Mr. Coffee? Talking about risky and slow, not to mention impossibly unrealistic. Just think of the timing and the logistics. That sure defeats the purpose of Amazon Prime. You might as well take a Greyhound bus to your nearest Amazon shipping center and fork them over the cash, tie your roller skating Barbie in a bindle and hitchhike home. That should be faster than mailing in the money.
It’s difficult to make a purchase online without a credit card. Sure you can do it with a Paypal account or a direct withdrawal from your checking account, but not every site accepts those forms of payment, and the transactions tend to be more complex and sometimes less secure.
Many credit cards offer purchase protection. If you buy a tv and the warranty is long gone, an extension of your warranty may be available if you bought it on your credit card. Other perks offered by credit cards are bonuses like trip protection if you are on vacation, or insurance for a rental car. It’s surprising just how many special credit card features go unused. It’s a good idea to look at your credit card details online and find out just which of your credit cards offers what features. It may affect what card you choose to use when you go to buy that brand-new Iphone next month.
Credit cards are also a great anti-theft device. Did you just get mugged? Think you can get that $100 bill back? Say goodbye to Ben Franklin.
What if credit cards were the only thing in your wallet? Sure they have potential balances in the thousands or more. That’s a lot of money at risk. But you can promptly call the credit card company and cancel them and not lose a penny. On top of that, many credit cards have theft protection and guarantees so that even if the crook is able to make some purchases before you cancel that card, you still aren’t out the money. This is assuming the perpetrator is able to circumvent the security measures the card has in the first place.
Can I Keep a Credit Card When My Bankruptcy Is Over?
Have you ever watched a movie about Vegas where a high-roller sits at the table, surrounded by onlookers, wellwishers, and naysayers, watching his every move?
Sometimes it’s a guy in a ten-gallon hat. Sometimes it’s a slick New Yorker with dark sunglasses and a fancy suit. Sometimes it’s some punk kid genius gambling away his parent’s life savings just to impress the captain of the college cheerleading squad.
Often, they are cool, calm and collected. But when it’s time to push all of their chips forward, the camera zooms in on beads of forehead sweat, or the twitch of an eyebrow corner.
The key to the scene is that pushing that mound of chips forward means you are all in. You are gambling every bit of your hard-won dollars – every cent of your life savings – it’s all on the line.
Bankruptcy is just like that. It’s an all-or-nothing proposition. When you file for bankruptcy, you push all of your chips forward. Those chips include your credit cards. You don’t get to pick and choose which cards you file on. When you file, they’re all included. So if you’re filing bankruptcy in Phoenix, or Scottsdale, or really anywhere else in Maricopa county, you’ve got to be all-in.
Actually that’s not 100% true.
All of your cards that have a balance have to be included in your bankruptcy. Anything with a balance is going to get eliminated when your case is filed. But if you have a credit card with no balance, it does not have to be included when you file for bankruptcy.
Yay! So anything with a balance can be eliminated?
Yes, any unsecured debt with a balance is going to be eliminated when you file. But since we are talking about the law, and more importantly, about attorneys, there are always exceptions. But for the most part, and in most situations, if it’s a credit card, it will be completely eliminated when you file your chapter 7 bankruptcy.
We don’t have the time to go over every exception to this rule, but the big exception is fraud. If the court finds that you knew you were going to file for bankruptcy in the near future and you still made a bunch of charges on your credit card, the court is not going to allow you to eliminate the debt.
One sure-fire way to get yourself in trouble is to make a single, large charge on a card right before you file. The court is almost guaranteed to view this as a charge you made knowing it would be eliminated in bankruptcy. You will almost certainly have to pay this debt back or risk having your bankruptcy cancelled. And when that happens, you get to repay all of your debts.
If anything with a balance is going to be eliminated when I file, does that mean I get to keep any card that has no balance?
You are probably familiar with the idea that credit card companies periodically check the credit of their cardholders. If you were not familiar with it, then you are now.
If you’ve got a credit card with no balance when you file for bankruptcy, it’s not going to automatically be eliminated when you file. So you’ll get to keep the card – at least for a while.
But this is where the automatic credit check comes in. Your card company will eventually know that you filed for bankruptcy. At this point, your record goes to some mysterious department at the corporate headquarters. Now it’s time to decide if they like you enough to keep your card open for your continued enjoyment. Depending on your luck, and some unknown other factors, you may either get to keep the card, or they may close your card. So just because you have a zero balance credit card doesn’t mean you get to keep it after filing. It depends.
How Can I Live Without You?
If you’re left with no credit cards after bankruptcy – don’t fret. You will be able to get new credit cards and rebuild your credit very quickly after filing for bankruptcy. You may have to start with a secured credit card if you are applying immediately after filing. A secured card requires you to put down a small cash deposit in order to use the card.
Shortly after the secured card, or if you wait a few months after filing for bankruptcy, you’ll be able to get yourself a full-fledged regular-old garden-variety credit card. It may have a small spending limit, and it may charge high interest rates at first, but if you use it just a little, you’ll get positive marks on your credit. And you’ll also have a credit card in case you have a financial emergency – like the fuel pump going out on your truck.
So you can see that credit cards can easily lead to economic ruin. And while this is true, it’s not tough to eliminate those debts through bankruptcy and get new cards again. Just be careful what you do with the new cards. Keep yourself out of trouble or you’ll be back to the bankruptcy attorney’s office again before you know it.