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Should I keep paying my credit cards if I’m going to file bankruptcy?

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In a Nutshell

It’s important to understand that you don’t have to be late on credit card payments to file bankruptcy. But at the same time, if you are really facing a hardship and are struggling to make ends meet each month then it is absolutely ok to fall behind on payments before filing bankruptcy.

Written by Attorney Karra Kingston.  
Updated July 22, 2020


If you are struggling to pay your bills every month, then filing for bankruptcy may be a good option to help you. If you have judgments against you, or creditors harassing you, filing a Chapter 7 bankruptcy can help you by eliminating your debts. If you don’t qualify for a Chapter 7 bankruptcy, then you may need to look into filing a Chapter 13 bankruptcy instead. Most people use bankruptcy as a last resort. Most people who are thinking about filing for bankruptcy are worried that if they fall behind on their credit cards before filing their case, their credit will be ruined forever. Falling behind on your credit cards right before filing bankruptcy really won’t have much of an impact on your credit score. Bankruptcy is a tool that people use when they can’t make ends meet. If you are able to pay your creditors each month without facing any hardship, then you’re probably not a good candidate for bankruptcy relief. However, if can’t pay all of your bills, you shouldn’t have to decide whether you should pay your visa credit card or buy groceries for your family. Instead of making monthly payments towards your credit cards use your hard earned money for necessities such as rent, food, transportation. You’ll need those things no matter what  and using your credit card to pay for them just has you repeating the same cycle next month.

Can I Keep My Credit Card When Filing Bankruptcy?

Many people are under a misguided impression that if they are up to date on their credit card bills, the credit card company will allow you to keep the credit card after filing bankruptcy. This is simply not true. After a bankruptcy case is filed, creditors are no longer allowed to chase after you for the balance because an automatic stay is in place. Your obligation to pay the balance on the credit card will be discharged. This means that credit card companies will close out your account, even if you are current at the time of filing. Bankruptcy is public record and many of these companies will find out that you filed even if you fail to list them on your forms. You should note, when you file for bankruptcy, you must list all of your debts and assets. Finally, even if you don’t have to list a credit card because you have a zero balance, they’ll still find out about your filing. Once they do, your cardholder agreement with them allows them to take a variety of actions with respect to your account. Most often, the account is simply closed. 

Why paying off a credit card before filing is not a good idea

You should also understand that when you file for bankruptcy, your unsecured creditors must be treated equally. This means that you are not allowed to tell the bankruptcy court that you want to continue to make payments to one unsecured creditor and not the other. Under the law, you’re not allowed to prefer one creditor over all others this way. That’s why you have to list any payments to creditors that total $600 or more in the 90 days before filing your bankruptcy case. If you pay a large amount to a creditor before filing your case, your trustee can go get that money back from the creditor and split it up among all of your creditors instead. 

Conclusion

It’s important to understand that you don’t have to be late on credit card payments to file bankruptcy. But at the same time, if you are really facing a hardship and are struggling to make ends meet each month then it is absolutely ok to fall behind on payments before filing bankruptcy. If you think that you may need bankruptcy relief or simply want to learn more about your options, consider free credit counseling with an accredited nonprofit. If you already know that Chapter 7 bankruptcy is the way for you but you can’t afford to hire a lawyer, see if you’re eligible for help from Upsolve. Upsolve helps low-income individuals regain their financial freedom by filing a Chapter 7 bankruptcy without an attorney. 



Written By:

Attorney Karra Kingston

LinkedIn

Ms. Kingston began her career as a bankruptcy attorney. She has appeared in front of many federal court judges and has helped numerous debtors obtain a fresh start. Ms. Kingston understands the complex federal rules for discharging debt. While working as a bankruptcy attorney, Ms... read more about Attorney Karra Kingston

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Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can’t access their basic rights when they can’t afford to pay for help. Combining direct services and advocacy, we’re fighting this injustice.

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