Unpaid medical bills and being out of work for an extended period are the leading reasons why someone may file for bankruptcy. Most people use bankruptcy as a last resort when the burden of debt becomes overwhelming. Bankruptcy essentially freezes your credit file, meaning you can't apply for any new credit while your case is pending.
If you used your credit cards to stay afloat, it’s almost impossible to get a handle on that debt without some help. Learn whether you can keep some credit cards if you declare bankruptcy.
Can You Keep Any Credit Cards in a Bankruptcy?
You typically can't keep credit cards if you declare bankruptcy. Bankruptcy isn’t a pick and choose proposition, and all creditors are to be treated the same. It wouldn’t be fair for you to discharge that $5,000 balance you owe to First National Visa but keep the personal loan you borrow from the credit union at work.
When you file for bankruptcy, you need to report all your credit cards, even those with a zero balance. Creditors will learn that you've filed for bankruptcy, and many creditors subscribe to services that peruse the bankruptcy filings nationwide on a daily basis. They compare the filings to their own customer databases. In most cases, even if it has a zero balance, any active account that matches up to a bankruptcy case will lose its borrowing privileges immediately.
Any accounts you fail to list in your bankruptcy paperwork will not be discharged.
To be eligible for discharge, the creditor must receive notice of the bankruptcy. You can’t list the name on the account without the address or provide incorrect information that would make it difficult for the creditor to identify the account.
What Happens to Company Credit Cards?
If your employer issued you a credit card to pay for travel and other expenses, you might be concerned about including it in your bankruptcy. You’ll only have to list the card if you’re liable to the lender for the balance.
Company credit cards come in three varieties based on who’s liable on the account:
- The monthly statement goes directly to the employer, and the employer is responsible for paying the bill.
- The monthly statement goes to the employee, who is liable for payment of the account, then seeks reimbursement from the employer.
- A combination of the two. The statement usually goes directly to the employer, but employees reimburse the company for any personal expenses.
When you file for bankruptcy, you must list the card if you have any personal liability on it. If your company shoulders that entire burden, and you have no responsibility for the account, you shouldn't list the card.
If you’re not sure whether you’re responsible for payment, your human resources department should be able to clear that up.
But this may clue you in: if your employer did nothing more than hand you a card (even one with your name on it) and tell you what you could purchase with it, it’s probably a company-issued card that carries no individual liability.
If you had to fill out an application for the card, like you did when you applied for your other personal cards, then you are most likely liable and need to list that debt in your bankruptcy. If you list the card in your bankruptcy, the lender will most likely close the account. The lender will still expect payment from the co-borrower—your employer—if there’s a balance on the account.
Talking to Your Employer
If you have to list that company credit card, you need to talk with your employer before filing for bankruptcy. This isn't something you want your accounting or HR employees or your boss to find out when they get a notice from the lender or from the bankruptcy court.
The thought of having to sit down with an employer and admit that you’re going to declare bankruptcy can be intimidating. Keep in mind that it's illegal to discriminate against a person for filing a bankruptcy case.
Alternatives to Company Credit Cards
Putting a company credit card account into your bankruptcy case isn't ideal for you or your employer, but it’s not the end of the world. It will require that you and your employer come up with a work-around. For example:
Another Corporate Card
Many national card issuers, including American Express, Bank of America, Capital One, Chase, and Citibank, offer business credit programs. Your employer probably has established relationships with one or more of these and can access its business credit card program. Most likely, your employer will have to agree to an account that doesn’t require that you take on any liability.
Company Debit Card
Your employer may set you up with a debit card. Employers typically don’t like this arrangement as they have fewer options to control spending when the money is being debited directly from a deposit account.
Your Personal Debit Card
The worst-case scenario is an employer who requires you to use your own debit card, but reimburses you later.
Your Personal Credit Card
You can try to open another credit account after your bankruptcy case is over. In fact, you’ll probably start receiving offers within a few months. Most of those will be high fee/high-interest cards or secured credit cards, but they’re a way to get back in the game and get a card for your next business trip.
After the Discharge
Declaring bankruptcy can feel like it's the end of your (financial) world, but you won't have to wait for long to start re-establishing your credit history. The bankruptcy will stay on your file for seven to 10 years, but you'll be able to start applying for credit well before then. There are creditors who want to work with people in these situations to help them rebuild their financial profiles.
There's a good chance you'll have to apply for a secured credit card. Those cards require a deposit—usually tucked away in a savings account of some kind—that's equal to your credit limit. Once you've shown a good history of charges and payments, the credit card company will typically release the hold on your security, refund it, and approve you to use the card on an unsecured basis.
Look for cards that aren't loaded with fees, but be prepared to pay a higher interest rate and carry a low credit limit.
- When you file for bankruptcy, you must include every creditor to whom you owe money—even cards with a zero balance.
- Once a card company finds out you're in the process of bankruptcy, it will typically shut down your account.
- Corporate cards may need to be included if you're personally liable for the debt.
- You can re-establish your credit soon after bankruptcy, but the cards may be secured and/or have high interest rates and low limits.