Chapter 7 Bankruptcy filers in Michigan who have a credit card account in good standing may think that it is a good idea to keep the account open. After all, if you already have an established credit card, it will save you the trouble of trying to get a new card after receiving your discharge. Also, it stands to reason that keeping the account around will help in your post-bankruptcy efforts to rebuild your credit score. However, credit card companies and the courts typically don’t like this strategy. In fact, this plan normally fails in a bad way. In attempting to keep a credit card open during Chapter 7 bankruptcy, the filer normally ends up with either an account in debt collections. Or, even worse, the court may dismiss the bankruptcy.
How Michigan Consumers End Up with Accounts in Debt Collections by Keeping a Credit Card Open During Chapter 7 Bankruptcy
If a Michigan consumer who files for Chapter 7 bankruptcy has a credit card with a zero balance at the time of filing, that account is unaffected by the bankruptcy. Yet, consumers who find themselves in this situation should still close the card. Why? Because the issuer will most likely close the account anyway once it finds out about the bankruptcy.
Also, if the credit card company closes the account while the card carries a balance, the total amount owed goes into debt collections. This happens even if there is no delinquency. The worst part about this is that the debt is not dischargeable because it is not part of the bankruptcy. So, Michigan filers in this situation emerge from bankruptcy with extra credit score damage. Sadly, they must also deal with calls and letters from debt collectors.
In addition, if a Chapter 7 bankruptcy filer makes extra payments on a credit card to bring the balance to zero before filing, extra trouble awaits. This is because bankruptcy courts view this behavior as “preferential payment.” Ideally, all creditors affected by a bankruptcy should receive an equal portion of the bankruptcy estate. Therefore, if the court sees that you’ve given one creditor preference, it may dismiss the bankruptcy.
How Michigan Consumers Can Get Credit Cards After Chapter 7 Bankruptcy
Some Michigan consumers have little trouble getting credit cards after Chapter 7 bankruptcy. Even with lower credit scores, they don’t have heavy debt hanging over their heads. Also, creditors know that those recently discharged cannot file for Chapter 7 again for another eight years.
Even if you cannot get approved for a “regular,” unsecured credit card, you can most likely qualify for a secured credit card. To open a secured card, you must provide a cash deposit. Normally, but not always, your spending limit on the card matches the amount of your deposit. Unlike prepaid cards, secured credit cards function just like regular credit cards. So, with responsible use and timely payments (which are reported to the credit bureaus), they can help you rebuild your credit score.
How Michigan Consumers Can Protect their Credit Scores After Chapter 7 Bankruptcy
Another important part of rebuilding credit scores after Chapter 7 bankruptcy involves regularly checking your credit reports. Unfortunately, Chapter 7 filers in Michigan often find errors on their credit reports after discharge. For those who want to immediately start rebuilding their credit, this is bad news. Sadly, these types of credit report inaccuracies often harm credit scores.
So, immediately following your Chapter 7 bankruptcy discharge, go to www.annualcreditreport.com, and request free copies of your credit reports from TransUnion, Equifax, and Experian. The Fair and Accurate Credit Transactions Act (FACTA) entitles you to do this once every 12 months. Then, while reviewing your credit reports, if you spot any errors, contact Credit Repair Lawyers of America in Michigan.
Even if you have a great bankruptcy lawyer, we’re the firm to call afterwards because we understand credit reports and the credit bureaus better than anyone. Our team of credit pros will connect you with an experienced credit attorney who will fix your credit issues and get you clean credit reports for FREE.
The Free and Legal way to Get Better Credit
Don’t let errors on your credit reports bring your credit score down. At Credit Repair Lawyers of America in Michigan, we’ve been cleaning up credit reports for consumers since 2008 for free. How do we do it? All of our fees come from the defendants in settled cases. This is why our clients pay nothing for the work we do.
Let’s start the conversation about what we can do for your credit. Set up your free consultation today by calling Attorney Gary Nitzkin at (248) 353-2882 or contact us on our contact page.
For more information about Free Credit Repair, please visit https://creditrepairlawyersam.com/michigan/credit-repair/.
FAQs
Keeping or "Excluding" a Credit Card With a Zero Balance in Chapter 7 Bankruptcy. You must list all your debts when filing for bankruptcy without exception. So "excluding" or not reporting an active credit card account you'd like to keep after bankruptcy isn't an option.
What chapter bankruptcy wipes out credit card debt? ›
In Chapter 7 bankruptcy, you sell off some of your assets to pay a portion of your debts, and the rest of the amount owed is discharged, which means it is erased. Chapter 7 bankruptcy is typically a highly effective way to get rid of credit card debt, but there are some exceptions.
Can I use my credit card right before bankruptcy? ›
However, you can use your credit card before filing for bankruptcy if you have no other way to buy something essential or "goods or services reasonably necessary for the maintenance and support of you and your family."
Can I get a credit one credit card after Chapter 7? ›
It most likely won't be easy but, yes, it is possible to get a credit card after filing for bankruptcy. Before you apply for any new credit, however, you're going to want to check your credit reports to verify that your bankruptcy has been filed or discharged.
Does the trustee monitor your bank account? ›
Since a trustee's focus is to review your assets and administer the plan to repay your creditors, yes, he or she will need access to your bank accounts and other financial information.
How much cash can you have in Chapter 7? ›
If you declare bankruptcy, will you lose literally every dollar that you have in your savings? The answer is no: some cash can be exempted in a Chapter 7 case. For example, typically under Federal exemptions, you can have approximately $20,000.00 cash on hand or in the bank on the day you file bankruptcy.
What are the three debts that Cannot be erased through Chapter 7 bankruptcy? ›
Debts not discharged include debts for alimony and child support, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal ...
What is the 90 day rule for bankruptcy? ›
This 90-day period begins on the date that you file for bankruptcy. During this time, the trustee has the right to demand payment from creditors. If a creditor does not comply with the trustee's request, the trustee can take legal action to recover the money.
How to get rid of credit card debt without filing bankruptcies? ›
How to Get Out of Debt Without Filing Bankruptcy
- Follow a Strict Budget.
- Choose a Payoff Strategy.
- Try a Balance Transfer.
- Consider a Consolidation Loan.
- Discover a Debt Management Plan.
You see, in a Chapter 7 bankruptcy case – an erase-your-debts-and-start-fresh bankruptcy – debtors are often advised to stop making payments on unsecured debts, like credit cards and medical bills.
Instead, spend the money on necessities like car repairs, replacement appliances, and dental work. Just keep good records. The trustee appointed to your case might ask you to prove you bought needed items and that you're not using a strategy to avoid paying creditors.
Should I tell my credit card company I'm filing for bankruptcy? ›
Sometimes It's Best Not to Say Anything
So, if there's nothing that you can do to resolve the issue—meaning, you don't have the money to pay—and you intend to file bankruptcy soon, your best bet might be to say nothing, or simply avoid answering the phone.
How to get a 700 credit score after bankruptcies? ›
Capably managing your credit after bankruptcy could put you back above 700 — the good-risk range — in as few as four years. Again, this means minimizing your credit card balance utilization, paying off balances, and being punctual repaying your debts.
How many points does your credit go up after bankruptcies? ›
After your bankruptcy filing falls off your credit report, your FICO score calculation could show a 30-to-100-point increase depending on the other information on your report.
Does Chapter 7 close all credit cards? ›
You'll likely have to give up all of your credit cards if you file for Chapter 7 bankruptcy, but you can start rebuilding your credit once your case is closed. If you file for Chapter 7 bankruptcy and hope to hang onto one of your credit cards, you will likely be out of luck.
What happens if you forget to add a creditor in Chapter 7? ›
Judd, in a no-asset Chapter 7 case, debt to an omitted creditor is deemed discharged, and the debtor is not obligated to notify the creditor. The logic is that because there are no eligible funds available for distribution, amending or reopening the bankruptcy case is essentially worthless.
Do you have to include all accounts in bankruptcies? ›
You must list all of your debts in your bankruptcy petition without exception.
Can I spend money while on Chapter 7? ›
However, the income you receive after filing your case is yours to use. Spend, save, or invest it – the Chapter 7 Trustee has no right to take the money or question what you do with it.
Is there a debt limit for Chapter 7? ›
Generally, a Chapter 7 bankruptcy discharge permanently eliminates all unsecured debts. This means if you have only or mostly unsecured debts, Chapter 7 bankruptcy can bring a lot of relief. Again, there's no minimum or maximum amount of unsecured debt required to file Chapter 7 bankruptcy.
