It is common for a person filing for bankruptcy to have many different credit cards. There is a belief in the public that they can “keep” a credit card through their bankruptcy case. During most consultations, the question often arises, “Can I keep one of my credit cards out of bankruptcy?”
A fundamental rule in all bankruptcy filings is that all debt must be listed in the bankruptcy petition. If there is a credit card with a balance, it must be listed in the bankruptcy petition as a debt. If it is listed in the bankruptcy petition, the bank issuing the credit card will be notified by the bankruptcy court and the account will subsequently be closed out.
However, if a credit card does not have a balance, it is not a debt and it does not need to be listed in the bankruptcy petition. In this scenario, the bankruptcy court will not notify the bank issuing the credit card of the bankruptcy case. But the credit card company will eventually find out that the debtor has filed for bankruptcy because they are constantly checking on their clients’ credit. At this point it is most likely that the credit card will be closed out, even though it did not have a balance on it. However, there are cases where the credit card is left alone and is not closed out. In essence, the credit card has been left out of the bankruptcy and the debtor has been able to keep it. This is a matter that is not in the discretion of you, the bankruptcy court, or your attorney…it is solely in the discretion of your credit card company.
Some websites have suggested that a reaffirmation agreement of a credit card may be possible. Reaffirmation of an unsecured credit card debt will not be approved by any attorney or bankruptcy judge. This is advice is misguided.
Now some may consider the above and think that they can just pay off their favorite credit card prior to filing bankruptcy and get to keep it. This must be approached with caution, as the payment can be deemed a preferential payment and the payment clawed back. Moreover, even if the credit card is at zero balance, it is still likely that the credit card will be closed out after the bankruptcy case is filed. This should be discussed in detail with your bankruptcy lawyer.
If you would like to have a free consultation and explore bankruptcy as an option please contact us via phone at (818) 305-6200 or fill out a contact form on our website.