Credit Card in Bankruptcy –Is That Possible?
Can I use a credit card in bankruptcy?
A credit card in bankruptcy can play a role in a number of different places. It is conceivable that you already have a credit card in bankruptcy or that you would like to use a credit card after bankruptcy has commenced. As a rule, neither the possession nor the use of the credit card is generally prohibited in thebankruptcy 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 on the type of credit card, on 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 to you what happens to the credit card in the respective process phases and under which conditions a credit card 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. Thereafter, the amount listed must be settled. This type of credit card is nothing more than an interest-free loan that is to be repaid on the contractually agreed date.
Revolving card
With the revolving card it is the case that, compared to the charge card, not the entire credit amount has to be settled. Rather, the customer has the option of paying 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 it is more expensive overall.
Debit card
The debit card works differently than the two types of credit cards mentioned earlier. Here it is so that 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 the use of the credit card is offset directly against the current account. The advantage of this type of credit card is the elimination of interest charges. Please note that not all companies accept payment transactions with this type of credit card. Inquire accordingly beforehand whether such credit cards make sense for your needs.
Also Read How to Get a Home Loan Without a Traditional Job
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 check or bankruptcy court check.
Partner card
Often it is more advisable to get a partner card from a third person and not to apply for a credit card yourself. You could then benefit from the advantages of a “normal” credit card without having to apply for one yourself. At the same time, you would not breach your obligation in bankruptcy not to accumulate new debts.
Credit card in bankruptcy?
If you have a credit card and bankruptcy proceedings are opened, the bank will usually terminate the credit card agreement. This happens on the basis of the clause regularly contained in the credit card contract that an obvious bankruptcy of the credit card holder entitles the bank to terminate the contract. As a rule, this applies not only to the bankruptcy debtor’s credit cards, but also to 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.
Credit card in the conduct of business period?
Even during the conduct of business period, the use of a credit card is not per se 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 will and the conditions of the credit card company. 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 in the conduct of 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. There are banks that refuse a credit card agreement as long as you can in a credit bureau lists. But there are also banks that 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 in 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 have already pointed this out in our article on changes to the seizure protection account. Because 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.