I recently filed bankruptcy in Michigan. How do I get a credit card?
One of the most common questions I get while counseling one of my bankruptcy client’s is “I need a credit card, I’d like to keep at least one of my credit cards after filing. Can I keep one of them?” When you file a bankruptcy petition in the Detroit, Michigan bankruptcy court where I practice or anywhere in the US, you are required to list all of your debt, including credit card debt.
It is important to have a credit card in today’s society. You need one to rent a car, book a hotel room or make an online purchase. Be sure to be disciplined when using this easy credit.
If you have a credit card with a low balance, it may make sense for you to pay it off before filing bankruptcy, with the hopes that the creditor will allow you to keep it. If you don’t owe a balance at the time of filing bankruptcy, you do not have to list it as a debt, because you don’t have a debt with that creditor. Now I say “with the hopes that the creditor will allow you to keep it” because, a bankruptcy filing is a breach of the cardholder agreement and the creditor has the option of closing out the card, but in my 20+ years of practice, this has never happened. What if before filing bankruptcy, all your credit cards have a high balance or are otherwise maxed out? How do you obtain a credit card after filing bankruptcy?
How do you obtain a credit card after filing bankruptcy?
The first thing you need to ask yourself if you are thinking about getting a credit card after filing a recent bankruptcy is if you are certain that you are going to use it wisely and responsibly. By this I mean that you are going to use it for things like gasoline, food and clothes and most importantly, you are going to pay it in full every month (0r as quickly as possible) and will avoid making only the minimum monthly payments. Many of my past clients filed bankruptcy due to credit card debt that simply got out of control. They accumulated many credit cards, maxed out their balances and soon struggled just to make the minimum monthly payments on the cards without being able to use them anymore. They paid high monthly interest rates, paid over-limit charges and if they hit a bump in the road, such as loss of overtime or a temporary job loss due to illness for example, they were unable to make even their minimum monthly payments on time and their interest rate skyrocketed. Use credit cards wisely, you really only need one, and pay it in full every month. When I first started practicing bankruptcy law in the 1990’s, I told my clients that they could get by without ever having another credit card again. And while this still may be true, today, I believe that it is important to have one major credit card to help re-establish your credit after filing bankruptcy and in case you wish to make an online purchase, book a hotel room or rent a car, etc. The American dream of owning your own home can generally only be accomplished with the help of a mortgage, and re-establishing your credit after bankruptcy can start with a major credit card which you use and pay on time.
Most of my clients tell me that they are mailed pre-approved credit card offers after filing bankruptcy.
As a Michigan bankruptcy attorney, my clients are telling me that shortly after they are granted a bankruptcy discharge, they receive pre-approved credit card offers in the mail. Credit card companies actually use mailing lists from cases that are filed in the bankruptcy court. Many of these credit cards are from major US banks that many of my clients have listed as creditors on their Chapter 7 bankruptcy. “Why is Chase sending me a credit card offer right after I wiped them out in my bankruptcy?”
Try to avoid multiple credit cards as carrying high credit card balances can cause financial headaches and possibly another bankruptcy down the road.
The reason is that Chase more than likely still made money in their credit relationship with you even though you ultimately discharged the debt in a bankruptcy. All those years in which you paid 20%+ interest, late payment charges and over-limit charges added up to way more than you borrowed and that doesn’t even include the money they made from the merchant charges. That coupled with the fact that they know that you just filed a Chapter 7 and wiped out all of your other credit card debt, medical bills and all other unsecured debt, as well as the fact that you cannot file another Chapter 7 for eight years, they perceive you as a good credit risk. They know that most people will only file bankruptcy once in their lives and that they learn from the experience and are more careful in the future, and are likely to pay their new debt on time for years to come. Remember, a bankruptcy discharge is meant to give you a fresh financial start and in most cases; my clients credit scores actually go up after filing bankruptcy.
Other post-bankruptcy options: Secured credit cards, store credit cards.
In the unlikely event that you are unable to obtain a major credit card within six months after your bankruptcy is discharged, you might want to try applying for a store credit card such as Target, Home Depot or Lowe’s, for example. Not only will having credit with these store credit cards likely trigger an offer from a major credit card company, but they can also save you money on in-store purchases. I would advise you to keep it within your control and stay disciplined. Don’t get multiple credit cards, pay them in full every month, if possible, and use them wisely. Michigan has many credit unions, which can sometimes be helpful to their members as long as you haven’t caused them a loss in bankruptcy. If you are a member of a credit union, sit down with your branch manager and see if they can help you obtain a major credit card. If you are not a member of a credit union, consider becoming one. They may also be able to start you out with a secured credit card which is accepted just like an unsecured credit card except that you deposit money with the credit union similar to a security deposit. Again, similar to a store credit card, with six months of responsible, disciplined use and paying on time every month, you will soon receive a major credit card pre-approval notice in your mailbox.
Michigan Bankruptcy Attorney Walter Metzen is a board certified consumer bankruptcy attorney and has filed over 20,000 personal bankruptcy cases.
