Can I Keep a Credit Card in Bankruptcy?

Clients will often ask if they can keep one or two credit cards in bankruptcy. Usually, bankruptcy clients will want to keep at least one credit card to cover emergencies or to help bridge the gap between pay periods. Sometimes, the client will have a long-standing account they don't want to close, or a favorite retail card used frequently.

Whatever the circumstances, unfortunately you will not be able to keep and maintain a credit card through bankruptcy. This is true in both Chapter 7 and Chapter 13 bankruptcies, and it doesn't matter whether or not the credit card has a large balance or no balance at all.

Why is the Bankruptcy Code so adamant about all credit card debts being disclosed and eliminated? Wouldn't a credit card company want the account to remain open rather than be discharged? The Bankruptcy Code has other ideas, and it revolves around the theory that creditors of the same type should all receive the same treatment.

This logic prevents creditors from rushing to file lawsuits and make the first or earliest claim on the debtor. It also promotes fairness in general. The debtor is not permitted to pick and choose which credit card will get paid. The credit card companies know this, and accept the treatment. This reduces adversarial motive throughout the bankruptcy process.

In practice, all credit cards are eliminated in a Chapter 7 bankruptcy (with some rare exceptions, such as credit cards used to pay taxes). In a Chapter 13 repayment plan, all credit cards are paid at the same rate, which can range anywhere from zero cents on the dollar, to full repayment.

Debtors filing a Chapter 13 bankruptcy will need to acclimate themselves to not using credit cards for the duration of the 3 to 5 year plan. This may be difficult, but it is certainly not impossible. But, more to the point, it is necessary. All credit cards will be closed out.

Once the bankruptcy is discharged, the debtor will have the opportunity to apply for new credit. Getting new credit cards may be easier than you think. It is highly recommended to get one credit card coming out of bankruptcy, paying the full balance every month. This will rebuild your credit without leading to old debt problems.