Credit Card in Bankruptcy –Is That Possible?

A credit card in bankruptcy can play a role in several different places. It is conceivable that you already have a credit card in bankruptcy or would like to use one after bankruptcy has commenced. As a rule, neither the possession nor the use of a credit card is generally prohibited in a bankruptcy or debt situation, according to Chapter 7 bankruptcy. Whether credit card use is possible and permissible before, during, and after the bankruptcy depends on several factors: on the one hand, the type of credit card, the status of the bankruptcy proceedings, for which payment transactions the credit card is used, and what the lender’s business practice is.

The following article first outlines the most important types of credit cards. We will then explain what happens to the credit card in the respective process phases and under which conditions it can be used during and after bankruptcy.

Types of credit cards

Charge card

You can use the charge card to pay for goods and services and receive a statement at the end of the month. After that, the amount listed must be settled. This type of credit card is only an interest-free loan to be repaid on the contractually agreed date.

Revolving card

With the revolving card, not the entire credit amount has to be settled, compared to the charge card. Rather, the customer can pay back the credit line used in monthly installments. Since the settlement of the credit line used does not immediately follow the billing month, interest is usually charged by the credit card issuer. The revolving card is more flexible than the charge card but more expensive overall.

Debit card

The debit card works differently than the two types of credit cards mentioned earlier. Here, the debit card is linked to the checking account. The “credit line” used is billed directly to the checking account. It is, therefore, not a credit card in the classic sense, as using the credit card is offset directly against the current account. The advantage of this credit card type is the elimination of interest charges. Not all companies accept payment transactions with this type of credit card. Inquire accordingly beforehand whether such credit cards make sense for your needs.

Prepaid card

The prepaid card works on a ‘top-up ‘ basis. You can load a certain amount onto the prepaid card and receive a credit limit based on the top-up amount. There is no interest here either. This credit card is very popular with people without high or regular incomes and those who appreciate full cost control. These credit cards are usually available without a credit or bankruptcy court check.

Partner card

Often, getting a partner card from a third person is more advisable than applying for a credit card yourself. You could then benefit from the advantages of a “normal” credit card without applying for one yourself. At the same time, you would not breach your obligation in bankruptcy not to accumulate new debts.

Credit card in bankruptcy?

The bank usually terminates the credit card agreement if you have a credit card and bankruptcy proceedings are opened. This happens based on the regular clause in the credit card contract, which states that an obvious bankruptcy of the credit card holder entitles the bank to terminate the contract. As a rule, this applies to the bankruptcy debtor’s credit cards and his overdraft facility.

In addition, in insolvency proceedings, there is an obligation to manage the household in a manner that is gentle on assets. A waste of assets can cost you the discharge of your remaining debts and, thus, the success of your regular bankruptcy or private bankruptcy proceedings. Nevertheless, not every credit card use would automatically be a violation of the stated obligation. Rather, it depends on whether you use the credit card to pay for reasonable or luxurious debts you have incurred.

A credit card in the conduct of business period?

Even during business, the use of a credit card is not prohibited. Rather, it depends on the credit card issuer whether or not they will provide you with a credit card. In this respect, it depends on the credit card company’s will and conditions. Some consumers are sent a credit card from the finance bank after a finance purchase. This is an offer from the bank. If you use your credit card, you have agreed to a credit card contract through conclusive behavior. This is also not prohibited during the business period.

But remember here, too: There is still an obligation not to waste assets. The mere use of a credit card does not endanger the discharge of residual debt, but the payment of luxury goods can certainly pose problems. This can lead to the refusal to discharge the remaining debt.

Credit card after discharge of remaining debts?

After the residual debt has been discharged, the insolvency proceedings will generally end, and the court will note that the residual debt has been discharged for three years. This entry does not prevent the conclusion of a credit card contract. It is up to the financial institution whether or not to grant the credit card you are applying for. Some banks refuse a credit card agreement if you can be on a credit bureau list. However, some banks will still grant you a credit card, although the type of credit card should not be freely selectable.

The new P-account certificate has been put into effect.

Anyone struggling with financial worries can look forward to the new P-account certificate, which has been improved for debtors since December 2021. We already pointed this out in our article on changes to the seizure protection account. In addition to the legally applicable non-attachable basic allowance and the incremental allowance, other cash payments received on your account can now be protected from seizure.