Credit Cards and Bankruptcy

Never Reaffirm Credit Card Debt

Don’t be tempted to “reaffirm” a credit card debt (which means the debt will survive your bankruptcy), just to save the credit card for future use. You will be able to get new cards soon enough. Unless the outstanding balance is quite small, reaffirming is a bad deal. Don’t listen to the horror stories about how bankruptcy filers have to go through years and years of credit depravation. That’s a myth. Today there’s a whole industry out there eager to do business with you.

The creditor may offer all sorts of inducements for a signature, but you should know that it’s a sucker deal plain and simple. Don’t buy into it.

Under chapter 13, your unsecured debts, (Which includes most credit cards) will be paid off for less than is owed. Fifty to seventy percent would be a quite normal level. And since you’re not paying the full amount, you can expect most creditors to immediately cancel your account (unless you reaffirm the debt).

It’s not unusual for a credit card bank to claim that your debt non-dischargeable and should be paid in full. They can use several different approaches here. One would be to claim you used fraud in obtaining their card. (hell, they issue cards to people’s cats and dogs so you know they aren’t very careful about who they send cards to!)

Did you inflate your salary a bit? (Most people do) Did you purchase or obtain cash advances for more than $1,150 during the 60 days just before your filing? (many credit card issuers advertise that their cards come in handy “when you’re short of cash”!) Have you increased your credit card purchasing unusually? Even the act of visiting an attorney can be viewed as evidence of fraud!

If your balance is considerable, you can expect your bank cards to come after you in this way. You can also expect a ton of unsubstantiated claims that you should have no problem denying later.

Happily, most courts look on these claims of fraud with disdain. Often the court will disallow their claims - but you shouldn’t bank on that. Be prepared to counter their claims as accurately as you can. In the end, they’re just trying to scare you into signing a reaffirmation agreement so stay calm and in control.

Be careful here because if they challenge you in this way, you’ll have to make a response or they will win by default and your debt will remain even though your bankruptcy goes on as planned.

Changes in your purchase pattern, any over limit purchases, any purchases attempted after being notified the card was cancelled, charge activity after you lost your job, multiple purchases on the same day, unusual charges for luxury items or vacations may cause you problems.

Bank credit cards will review your purchase records carefully in order to determine something they call “initial date of insolvency”. According to them this is the date you became unable to pay your bills and should have stopped making credit card purchases. In their view any purchases made after that date represent a fraud.

Back