Which credit cards should a debtor declare on a bankruptcy petition?

lotsacreditcardsOne of the most common questions bankruptcy lawyers get from clients runs along these lines: “Which of my credit cards do you think I should declare in the bankruptcy?”

This one actually has a simple, straightforward answer: all of them! There are a few reasons why.

First of all, the bankruptcy law simply requires debtors to list all their cards, and in fact, all of their debts, period. (he requirement is most explicitly stated in section 521 of the bankruptcy code). Complying with the rules and basic honesty means a lot in the bankruptcy system, as in life itself. There is no good reason to fudge your debts on a bankruptcy petition, as nothing good can come of it, while lots of problems could crop up further down the line if debts are omitted. (The Weizman case from the First Circuit Court of Appeals gives a good example of some of the problems of not reporting debts when filing a case).

Second, in the age of electronic case filing, all creditors are going to find out about the bankruptcy case more or less instantaneously, and will cut off all cards anyway. This is done without regard to whether there is only a small balance, or even no balance at all on the card. So there is no point in trying to “keep” a card with a small balance, because it just won’t work.

Third, it is in a debtor’s own self-interest to get as much “bang for the buck” out of their filing. A debtor with three small credit card balances of $300 each, would still be $900 better off by declaring these cards and making sure the $900 bucks gets discharged. That’s not chicken feed to folks in a financial hole!

If for some reason it is absolutely crucial to hold a credit card after a filing, debtors would be better off looking into getting a secured card, where the card limit is tied to the balance of an off-setting savings account. This option also has some value in rebuilding credit history after bankruptcy.

 

By Doug Beaton

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