People rely on credit cards for financial flexibility. They may carry balances after incurring large, unexpected expenses. Others may simply use them monthly to cover costs on demand instead of waiting for a paycheck.
Bankruptcy inevitably affects access to revolving lines of credit. What can those filing a Chapter 7 bankruptcy expect when they have open credit cards and file initial paperwork with the courts?
An end to collection efforts
Those who have fallen behind on their payments or exceeded their credit limit may receive calls, emails and letters from their lenders attempting to bring the account back into compliance. Collection activities typically halt immediately once the courts issue an automatic stay for the person who filed for bankruptcy.
The closure of open accounts
People might try to maintain their financial flexibility by choosing not to include one of their credit cards in the list of dischargeable debts they provide to the courts. They may also avoid carrying a balance on the account in the hopes of keeping it open. Lenders notified of a borrower’s pending bankruptcy generally freeze or close any open revolving lines of credit. Doing so limits the risk of fraud and losses for the organization.
A discharge of balances
If the bankruptcy case is successful, people can eliminate their unsecured credit card debt in a matter of months. Chapter 7 bankruptcy typically makes people eligible to discharge credit card balances and debt that began with credit card spending.
Reviewing one’s personal financial obligations with a bankruptcy attorney can help people understand what to expect when they file. People who prepare in advance for the closure of their credit lines can avoid many secondary financial complications when they initiate Chapter 7 bankruptcy proceedings.