Legally reviewed by Allen A. Kolber, Esq. - The Law Offices of Allen A. Kolber, Esq., P.C.
When you file for bankruptcy in Rockland County, or anywhere in New York for that matter, you’ll find that most of your credit cards will be closed and the remaining balances discharged, depending on the type of case you have filed. While this may seem incredibly restrictive at first, you’ll find that this is an important first step towards receiving a financial fresh start. The following blog explores what you can expect to happen to your credit cards during bankruptcy and how an experienced Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., P.C., can help you recover from this outcome.
What Happens to My Credit Cards When I File for Bankruptcy in New York?
If you are considering filing for bankruptcy in Suffern, Nyack, Nanuet, or any other community in or around Rockland County, it’s critical to understand that your credit cards will most likely close after you submit your bankruptcy petition.
It is not talked about enough, but you will likely have to give up all your credit cards once you file for Chapter 7 bankruptcy. Specifically, your credit card companies may cancel them on your behalf. This is because your credit card account essentially serves as a type of contract. So, when your credit card is canceled, so is a valid agreement between you and your credit card company. Once your debt has been discharged through the bankruptcy process, creditors, including your credit card issuer, are generally prohibited from attempting to collect discharged debts, though certain exceptions may apply. After all, protection from such creditor activity is likely why you filed for Chapter 7 bankruptcy in the first place.
While you now understand that this is a positive thing, you may still be confused as to how you will manage to pay for your everyday expenses during your bankruptcy proceedings. Well, you may rest easier knowing that you are still allowed to hold a debit card so payments can be taken directly from your bank account, and you do not incur any further debts. Bear in mind that whether the money in that account is safe from your trustee is a separate question, answered by the exemptions you claim rather than by the card itself.
In many instances, this applies to both Chapter 13 and Chapter 7 filings, though the treatment of debt and how repayments are handled vary considerably between these filing options.
What Happens to Credit Cards Immediately After Filing?
- Most credit cards are closed by the card issuer shortly after the petition is filed
- Outstanding card balances are generally considered an unsecured debt
- During Chapter 7, these balances are frequently discharged entirely
- During Chapter 13, a portion of the balance may be repaid through the repayment plan
- You are generally unable to use existing credit accounts during your bankruptcy filing
Can Bankruptcy in New York Eliminate Credit Card Debt?
For most filers, credit card balances make up a considerable portion of the debt they find themselves in. As such, when repayment is no longer a viable option, filing for bankruptcy may be used to eliminate these balances.
How Credit Card Debt Is Treated
- Credit card debt is considered a non-priority unsecured debt
- During Chapter 7, qualifying debts are generally discharged
- During Chapter 13, debts are organized into a three- to five-year repayment plan
- Once discharged, debt collectors are prohibited from attempting
- However, some exceptions can apply in instances of recent large or fraudulent purchases
The Two Thresholds
Consumer debts to a single creditor that total more than $900 for luxury goods or services incurred within 90 days before filing are presumed to be nondischargeable. The same presumption applies to cash advances totaling more than $1,250 from one creditor taken within 70 days of filing. These figures are adjusted every three years and will run through March 31, 2028, so you should confirm the amounts before your filing date.
What Counts as Luxury, and What You Can Do About It
It’s important to understand that the statute is narrower than the word “luxury” would suggest. Goods and services that are reasonably necessary to support you and your dependents are excluded, which can include:
- Ordinary groceries
- Clothing
- Rent
- Utilities
Additionally, the presumption is rebuttable. If the card company raises this presumption, you can show that you intended to repay when you made the charges. The practical takeaway is that a spending spree in the weeks leading up to your filing is the one thing that is most likely to cost you a discharge on a balance.
What Are the Alternatives to Using a Credit Card During Bankruptcy?
As you will be unable to use your existing credit cards once your bankruptcy petition has been filed, it’s important to understand the options available to help you manage your daily expenses.
Alternative Payment Methods
- Debit cards linked to checking accounts
- Cash payments for minor and everyday expenses
- Prepaid cards to help with budgeting
- Bill-auto payments through your online banking account
How Can I Rebuild My Credit After My Rockland County Bankruptcy Case?
Contrary to what you may initially assume, it may be easier for you to apply for credit cards after your Chapter 7 bankruptcy case than you initially realize. This is because most or all of your debts were likely discharged at the close of your bankruptcy case. And so, credit card companies may reasonably assume that you have enough disposable income and minimal debts to be able to handle the responsibility of a credit card adequately.
Additionally, credit card companies know how long it will be before you are eligible to file for bankruptcy again and wipe out debt:
- Chapter 7 to Chapter 7: Eight years from the filing date
- Chapter 7 to Chapter 13: Four years from the filing date
- Chapter 13 to Chapter 13: Two years from the filing date
- Chapter 13 to Chapter 7: Up to six years from the filing date
- You should note, however, that there is no waiting period if:
- The prior Chapter 13 filing paid 100% of all unsecured debts, OR
- Paid at least 70% with a plan proposed in good faith that shows your best effort to repay
- You should note, however, that there is no waiting period if:
These rules bar the discharge of debts rather than the filing itself, and each date is counted from filing date to filing date. This similarly reduces your posed risk, at least for the foreseeable future.
Once you obtain a new credit card, you must work on rebuilding your credit in the wake of your bankruptcy. For this, you may use your credit card regularly for day-to-day purchases, so long as you keep it below your imposed credit limit. And also, so long as you know you can handle paying it off in full on the imposed due date. If you consistently do this, your credit line may gradually increase. In turn, your credit score will follow suit and rise.
Rebuilding Credit After Bankruptcy
- Apply for a secured credit card with a low spending limit
- Make payments on time, every month
- Keep credit utilization below 30%
- Regularly monitor your credit report for inaccuracies
- Do not take on high-interest debts when possible
Contact an Experienced Rockland County Bankruptcy Firm
This matter may obviously be important to you, and you may want the best possible outcome. So please, do not fight this without a skilled Rockland County bankruptcy attorney in your corner. The team at The Law Offices of Allen A. Kolber, Esq., P.C. is here to help. Contact us today to learn how we can represent you.
