Revolving credit is a financial necessity for many modern households. Whether you are a young professional establishing yourself in your career or a parent with a couple of children, you never know when there will be unexpected expenses that exceed how much money you have available.
Credit cards help people by giving them an opportunity to pay for something before they have the actual money in their bank accounts. Unfortunately, a slowly-growing balance due on a credit card can quickly reach a point where it causes hardship for the borrower.
Those coping with overwhelming debt may file for bankruptcy. What happens to your credit cards after you file?
Your lenders will likely freeze your accounts
Your ability to borrow money depends on your capability and willingness to repay the amount borrowed. When you file for bankruptcy, most of your unsecured debts will be eligible for discharge.
Creditors seek to protect themselves by turning off the borrowing power of those who file for bankruptcy, often the very same day that they file. Even a lender that does not have a balance on their account and will therefore not be part of your discharge will likely freeze your account and prevent you from using the credit card involved again.
The amount owed may be subject to discharge
Provided that you qualify for the kind of bankruptcy that you file and you complete the process, the courts will approve the discharge of the remaining balance on your unsecured debt, including your credit cards. You will no longer have to make payments on those accounts.
New cards will be an option within weeks, maybe months
There are rules that prevent you from filing for bankruptcy repeatedly in quick succession, so creditors know that shortly after your discharge is a good time to sign a new credit agreement with you.
You will likely have the option of opening a new credit card within a few weeks or several months of your discharge. Although the terms for those early offers may not be the best, they provide you with a chance to start rebuilding your credit. A few years later, you may become eligible for better credit cards with more favorable terms.
Understanding what will happen to your credit cards, which may play an important role in your household budget, can help you plan for the impact of your bankruptcy filing on your finances.