Applying For A Credit Card During Chapter 13 Bankruptcy
Fortunately, if you find yourself in trouble with too much debt, you have the ability to file for bankruptcy. However, when offered this type of debt relief, you should not consider it an easy way to rack up debt and have it eliminated. Abuse or fraud is not tolerated. If you hire a bankruptcy attorney, you should not apply for a credit card during that process. In Section 526 and 528 of the Federal Bankruptcy Law, it states that your debt relief agency is not supposed to suggest to you that you should apply for any more credit.
Bankruptcy Payment Plan
A stipulation in Chapter 13 bankruptcy law states that you, as a debtor, are not allowed to increase any debt without receiving the permission of your bankruptcy trustee. If you do apply for a credit card, your bankruptcy payment plan will be canceled and the bankruptcy proceedings will be stopped. Your trustee views Chapter 13 bankruptcy as a serious matter and expects the same from you as a debtor. Bankruptcy courts and trustees will not tolerate abuse of bankruptcy laws relating to state or federal government guidelines. In fact, if you attempt to abuse the law, you may face litigation if regulators perceive an intention for fraud. If this were to occur, you may find yourself in front of a district attorney.
Granting Additional Credit
Are There Credit Card Debts That You Cant Erase During Chapter 7 Bankruptcy
In a few cases, a debtor may not be able to discharge credit card debt. A creditor may file an objection to the debtorâs discharge in some circumstances. The objection is an adversary proceeding, which is a lawsuit within the bankruptcy case.
Two reasons why credit card debt may not be dischargeable are:
If you use your credit cards to charge $675 or more in âluxuryâ goods or services within 90 days of filing your Chapter 7 petition, the court may find that the credit card debt is non-dischargeable.
Luxury goods and services can include more than just really expensive items or property that you own. âLuxuryâ can mean anything that you donât necessarily need to stay on your feet or support your dependents. Therefore, if you have charged $675 or more in credit card debt recently, you may want to wait at least 90 days from the last credit card charge to file a Chapter 7 bankruptcy case.
If you used the credit card to pay for debts that you could not typically get rid of in a bankruptcy case, that debt wonât likely get erased. For instance, if you use your credit card to pay child support, alimony, back taxes, or student loans, the credit card company may object to your discharge.
Special Circumstances That May Allow For Credit
Once you have filed for bankruptcy, you are not typically allowed to get approved for credit unless your situation involves a special circumstance. Several special circumstances in which the court may allow you to obtain new credit during bankruptcy include:
- Medical Expenses Although you may not consider medical expenses as an incurring debt, they are a form of debt. When you visit a medical professional for services and receive a bill at a later time, the Bankruptcy Code considers this new credit.
- A New Vehicle Its common for individuals to purchase a new vehicle during their Chapter 13 bankruptcies. While getting a loan from a conventional lender can be tough, lenders who cater to individuals making Chapter 13 payments do exist. If you get approved by one of these lenders, understand that you will be paying a high interest rate.
- You may be able to get a new credit card during Chapter 13. If youd like to rebuild your credit, opening a secured credit card can help.
Although you typically need permission to incur additional debts during bankruptcy, small debts that are outlined by your Chapter 13 trustee, as well as any new tax liabilities that you incur, do not require the courts approval.
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Getting A Credit Card During Bankruptcy
During your bankruptcy, it is an offence under the Bankruptcy and Insolvency Act to apply for credit without disclosing the fact that you are an undischarged bankrupt or in a consumer proposal.;This means you;will not likely be approved for a regular;credit card during your bankruptcy or proposal.
We know that it;is difficult to function without a credit card, particularly during a proposal which can last for a longer period of time. Try making a hotel reservation or buying an airline ticket without having a credit card and youll know what I mean. However you do have options for surviving without a credit card.
One option is to apply for a;secured credit card.;;For example, Home Trust Secured VISA allows you to obtain a card with limits between $500 and $10,000. You must put down a security deposit for the amount of your limit in full. Each month, you pay off your balance in full, and the transaction;is reported to the credit bureau, thereby re-establishing your credit. It is important to note that if you are currently bankrupt or in a proposal you must disclose this in the application.
Full Transcript Show 42 With Jim Dunbar
As I record this show in June 2015, interest rates are at record lows. If you have perfect credit, you can get a conventional mortgage for 3% or even less. With good credit you can still get a car loan at close to zero interest. But what happens if you have less than perfect credit? The answer is that in many cases your only option for credit is through a high interest loan or a high interest credit card. And I can tell you there are lots of lenders willing to lend at high interest rates to people with less than perfect credit.
When I started out in the debt help business 25 years ago the big players were the finance companies, many of whom no longer exist. Today its not the finance companies that dominate the market. If you have poor credit your options are the higher interest lenders including some specialized finance companies, as well as payday loan companies and high interest credit cards.
So, with that background lets get started with todays guest. Who are you? Where do you work and what do you do?
Jim D: Well, thanks for having me Doug. My name is Jim Dunbar. I am the Managing Partner and Chief Commercial officer for Affirm Financial Services.
Doug H: So, tell me a bit about Affirm Financial Services, then. Thats obviously not a big bank.
Jim D: Thats correct. We have designed the product for people that are in bankruptcy or consumer proposal and for those who have been recently discharged.
Jim D: The annual interest rate on the card is 28.8%.
Jim D: Yes.
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Will I Be Able To Get A Credit Card After Filing For Bankruptcy
The reason I usually dont suggest trying to keep a credit card while filing bankruptcy is because youll get plenty of offers in the mail once you file. Although your current credit card company may decide that youre a higher risk because of the filing and cancel your card, there will be plenty of other companies that see you as a much safer bet since you dont have all that other debt to worry about after bankruptcy. You have to be careful, however, as many of these offers come with very high interest rates. While I like to reassure clients that bankruptcy wont prevent them from obtaining credit in the future, there are a series of steps that should be taken to rebuild your credit as quickly as possible.
As usual, these blog posts shouldnt be taken as legal advice nor does it form an attorney-client relationship. Laws are always changing and every state and situation is unique. Contact us or your local bankruptcy attorney for specific advice for your situation. Michigan consultations are always free if you call us at 237-7979.
Correct Any Errors On Your Credit Report
Your new credit report should show that you have no debts and that you have obtained your final discharge from bankruptcy. If the credit report is not correct, identify the errors and notify the credit bureaus immediately. In most cases, you can fill out a form provided by the bureau. You may have to provide documentation as evidence that you have received your final discharge from bankruptcy.
Usually within 30 days of filing your notice of errors to the credit bureau, they will send you a written response outlining what action they have taken to correct the errors or confirm that the information they have is correct.
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Chapter 7 Gets Rid Of Credit Card Debt And Judgment Debts
When you file a Chapter 7 bankruptcy petition, you include all your debts. A Chapter 7 case discharges most, if not all, unsecured debts, including credit card debts and personal judgments from debt collection lawsuits.
You receive a bankruptcy discharge when you complete your Chapter 7 case. The bankruptcy discharge relieves your responsibility to repay a debt. In other words, if a debt is discharged in bankruptcy, you are not responsible for the payment of that debt. The creditor is not allowed to take any actions to collect a discharged debt.
Examples of debts that are eligible for a discharge in Chapter 7 include:
Old rent or lease payments
Medical bills and debts
Some old income taxes
Alimony, child support, and student loans are non-dischargeable debts. In a few cases, a debtor may be eligible for a hardship discharge for student loan debt. However, alimony, child support, and a few other debts are never dischargeable in bankruptcy.
Using A Secured Credit Card To Rebuild Your Credit After A Bankruptcy Discharge
Bankruptcy will help wipe out your debt and get your life back on track financially. However, after you have eliminated your debt, you will need to take steps to rebuild your credit. Filing for bankruptcy will temporarily hurt your credit score and having good credit is important. Without it, itâll be very difficult to buy a new car or home. Even most car rental companies perform a credit check before they will approve your request for a rental car.
Bad credit may even prevent you from being approved to rent an apartment. To determine your creditworthiness, lenders consider your credit score record. After filing for bankruptcy, your credit score will drop, but by the time you filed for bankruptcy, chances are that you had already fallen behind on your payments and your credit score was already negatively impacted. As a result, filing for bankruptcy isnât the end, itâs a new beginning. After receiving your discharge, you can take immediate steps to build credit. People sometimes think itâs impossible to get approved for new loans after filing for bankruptcy, but thatâs not true, it just takes some time and effort.
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Inadequate Income Is An Issue
According to their calculations, you dont have the means to simultaneously pay the debts that youre currently dealing with, plus add another payment for a new line of credit. They know this based on the income you listed on the application as well as the obligations they discovered from your credit reports.
It makes sense, too. Your Chapter 13 payment was based on your household bills and your income. What is left over is routed to your creditors. The trustees overseeing such cases rarely give much extra legroom for additional expenses, and that includes a credit card balance.
Apply For A New Line Of Credit
Adding a new line of credit can demonstrate that you can responsibly make on-time payments. In turn, itll help your credit score. However, when you apply for new lines of credit, the lender will do a hard pull on your credit. Every time you apply for new credit, your prospective lender accesses your credit report, says April Parks-Lewis, director of education and corporate communications at Consolidated Credit. Those inquiries can drag down your credit score.
As too many hard inquiries will ding your credit score, try to apply for credit lines you know you can qualify for. You can also apply to get prequalified, which results in a soft pull of your credit. When youre trying to build your credit after bankruptcy, here are some types of credit for you to consider:
Why this matters: A new line of credit can help you build your creditworthiness.
How to get started: Choose one of the options from above that fits your situation best and work on keeping that line of credit in good condition.
Think Twice About Working With Credit Repair Agencies
Instead of paying a credit repair agency, consider using that money to increase your emergency fund and savings. Focus your efforts on the habits and circumstances that led to your bankruptcy and how you can change them.
There are many unscrupulous agencies out there that will claim they can remove a bankruptcy or fix a credit report, says Samah Haggag, a senior marketing manager for Experian. There is nothing a credit repair organization can do that you cannot do yourself.
Why this matters: Credit repair agencies take the heavy lifting out of credit-building, but they charge fees. If youre willing to put in the work of checking your credit reports and disputing errors, you can save that money and use it to continue paying down existing debt.
How to get started: Take a look at your budget and request copies of your credit report yourself before looking into credit repair agencies.
Can A Credit Card Help Build Credit After Bankruptcy
It may seem counterintuitive to get a credit card after bankruptcy. Isnt this just creating a new opportunity to get into even more debt? But the truth is, a new credit card could be a great way to rebuild your credit ;if youll use it responsibly.
A Chapter 7 bankruptcy can remain on your credit reports for up to 10 years; a Chapter 13 bankruptcy can remain for up to seven years. Each type of bankruptcy will hurt your credit all on its own, but if things got that bad, its likely that you wound up with some late payments on your credit reports as well.
After bankruptcy, one of your goals should be to drown out those late payments with a solid record of on-time payments. The more on-time payments and accounts you have compared to late payments, the better.
Heres some good news: Negative items on your credit reports do the most damage when theyre fresh. As time goes by their impact will diminish. So manage your credit well, and in time youll see the fruits of your labor manifest in higher credit scores. But this process takes time, and youll have to be patient.
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How Luftman Heck & Associates Can Help
Prior to trying to get any type of new credit during bankruptcy, you should speak to a Cleveland bankruptcy lawyer at Luftman, Heck & Associates. Sometimes it makes more sense to wait until your bankruptcy proceeding is over before taking out loans. Once its over, you may be better off taking small loans that you can easily repay and use to rebuild your credit.
LHA can evaluate your particular situation and give you advice on whether or not obtaining credit during your Chapter 7 or Chapter 13 bankruptcy is a smart move. Contact us today by calling or emailing .
Here’s How Soon After Bankruptcy You Can Get A Credit Card:
- Secured credit card: After bankruptcy discharged
These cards require a refundable security deposit, usually at least $200, which doubles as your credit limit. Because you’re putting up your own money, your approval chances are high.
The Discover it Secured Credit Card does not reject applicants for having a Chapter 7 bankruptcy on their credit history. And the Capital One Secured’s only bankruptcy requirement is that the case must be fully discharged. Some cards, like OpenSky, don’t even check your credit report when you apply, so they’re great for post-bankruptcy credit improvement.
- Unsecured credit cards for bad credit: After bankruptcy discharged
One example is the . Credit One Bank says a discharged bankruptcy won’t hurt your approval chances, but could lead to a lower credit limit and a higher annual fee.
If a friend or family member makes you an authorized user on their credit card account, that account will be added to your credit reports, and you’ll benefit if the main account holder pays the bill on time every month. If your friend or relative allows it, you will also get a card with your name on it to use for purchases.
In addition to finding the right credit card with which to begin rebuilding your credit, you should review your credit reports for errors and monitor your credit score moving forward. You definitely don’t want the problems that led to bankruptcy to repeat themselves.
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Getting A Credit Card After Bankruptcy
Your first step toward getting a credit card after bankruptcy should be checking your credit report and so you know where you stand when researching various cards’ approval requirements. If, like many others who file for bankruptcy, you have credit reports that include late or missed debt payments, maxed-out credit cards, or accounts that have been turned over to collections agencies, your credit scores may have dropped into the fair or poor credit range even before taking a hit from the bankruptcy. While that may make it tough to get a conventional credit card or loan, there are strategies that can help you start rebuilding credit following a bankruptcy.
When looking for the right credit card, your best bet will likely be a secured credit card, which requires you to put down a cash deposit. The deposit amount typically equals the card’s borrowing limit, and if you fail to pay your card balance as agreed, the card issuer can take your deposit to cover the debt. Otherwise, a secured card works the same as a conventional card: You can make purchases up to the borrowing limit, repay them over time as long as you make a minimum monthly payment, and you’ll be charged interest on any unpaid balance you carry forward month to month.
Secured cards you may be able to qualify for after a bankruptcy discharge include:
Examples of unsecured cards available to individuals with credit scores of 579 or lower include: