Personal debt can slowly accumulate over many years. It may have started with student loans while you got your degree. Then, because of your large student loan payments, you had to use credit cards to cover your basic cost of living expenses while establishing yourself as a professional.
Now, you find yourself in this situation where you need credit cards to get by every month but you also struggle to pay your credit card bills. Filing for bankruptcy can be a way to reduce how much you have to pay towards your basic expenses every month, and it can lead to the discharge of what you owe on your credit cards.
What impact will personal bankruptcy have on your credit cards?
The balance is eligible for discharge
The benefit of bankruptcy when you have a significant amount of credit card debt is that whatever you owe may be eligible for discharge at the end of the process. That means you will not need to pay the companies back afterward.
Your accounts will typically close immediately
Companies that issue credit cards understand that the balance you owe is eligible for discharge as an unsecured debt. They don’t want you adding to the amount after you have identified your intention to file for bankruptcy.
Typically, credit card companies will close or freeze accounts when you file for bankruptcy. Even if you don’t notify them directly, they will receive notice from the credit bureaus of the impending bankruptcy case and will typically freeze your account once they discover the bankruptcy. All of the accounts will generally close at that point, meaning you will not be able to use them for additional payments.
You may need to open new credit cards
After your bankruptcy discharge, it will be years before you can qualify for bankruptcy again. Some lenders are eager to extend lines of credit to those who have recently discharged debts in a bankruptcy because they know they can collect years of payment without the risk of another bankruptcy.
The sooner you open a new line of credit after your bankruptcy, the sooner your credit score will start recovering. Of course, you can expect your earliest credit offers to be mediocre and to improve once you establish a history of making payments on time.
Learning more about how a personal bankruptcy impacts credit card debt and credit card use can help those trying to regain control over their finances.