Store Cards and Bankruptcy

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Written by Andrea Wimmer, Esq.  
Updated January 27, 2020

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Issuing credit cards to their customers is a favorite and quite effective marketing technique used by many retail stores. It makes the customer feel special and come back to take advantage of the “deals” only available to card holders. Common examples include Best Buy, Kohl’s and Apple credit cards. This article explores how store credit cards are treated in a Chapter 7 bankruptcy.

Do I have to list my store cards? 

Yes, you have to list your store cards in your bankruptcy forms. They’re credit cards just like your Mastercard or Visa. If you owe a balance, it’s a debt and that debt must be listed. If you’re at a zero balance, you don’t owe money on this card and you don’t have to list it. Of course, that doesn’t mean that the store won’t close your credit card once it discovers your bankruptcy filing. That’s why it’s never a good idea to pay off a store card in the hopes of using its benefits after the bankruptcy. 

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Where do I list my store cards?

List your store cards on your Official Form 106E/F - Schedule E/F as a nonpriority unsecured debt. Like any other credit card, if you stop making payments, the credit card company that issued the store card can file a lawsuit against you for defaulting on your payment obligations. If they get a judgment against you, they can start garnishing your wages. 

Store cards as secured debt

Sometimes the credit application for a store card will give the bank the right to repossess the items you purchased in the store using the credit card if you default on payments. Assuming the creditor complied with all the requirements of state law, this makes them a secured creditor. Chances are, you don’t remember what the fine print said when you signed up for the account and you have no idea whether the card is secured. In that case, it’s OK to list them as an unsecured creditor on Schedule E/F as mentioned above. If the creditor is secured and wants to be treated as a secured creditor in your case, they can let the court know later. 

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Threat of repossession as leverage for reaffirmation

Even if a credit card is secured by the items you purchased in the store, it’s pretty rare for a credit card company to actually take the steps necessary to repossess the items purchased. They want your old couch even less than they want your old car. Especially if it’s going to cost them a ton of attorney fees and repossession fees to pick up the items.

Once a bankruptcy case has been filed, it’s pretty easy (and cheap) for a creditor or their attorney to send a letter to the filer and essentially say that in order to keep the bedroom set, TV, or whatever you may have purchased you have to reaffirm the debt

Of course, a reaffirmation would allow the creditor to continue to bill you even after your discharge has been entered, because your liability on the debt won’t be eliminated. That means someone could end up with a $2,500 balance at 22% interest in exchange for a 3 year old couch that’s been through a toddler and a puppy already. That is never a good deal. 

How to handle a reaffirmation demand

Most people find that simply ignoring these demands is sufficient. This is especially true if the items purchased don’t tend to keep their value. It may be worth it for a creditor to go through the process of repossessing jewelry, but even that is unlikely. 

In the typical scenario, nothing happens if a request to reaffirm the debt is ignored and declined. Of course, there are always exceptions to the rule, so if you have a store card with a high balance that you used to buy certain big ticket items, consider speaking with a bankruptcy attorney before filing your case. 

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Store cards are typically treated just like any other credit card in bankruptcy. If you’re struggling with too much credit card debt and don’t have any expensive property or interests in a lawsuit, Upsolve can help! We provide free assistance to low-income Americans who need to file Chapter 7 bankruptcy but can’t afford to hire a lawyer. 

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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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