Can I Keep a Credit Card In My Chapter 7 Bankruptcy?

If you file for Chapter 7 bankruptcy and hope to hang onto one of your credit cards, you'll likely be out of luck. Once your credit card company learns of your bankruptcy, it will almost certainly cancel your card. This article explains what you need to know about Chapter 7 bankruptcy and credit cards, including why you can't keep personal credit cards when filing for Chapter 7 bankruptcy, and when you can keep a corporate credit card. You'll also learn the steps involved in getting credit after bankruptcy so that you can rebuild your financial standing.

Can You Keep Any Credit Cards When You File Chapter 7 Bankruptcy?

For many, the thought of filing for bankruptcy feels overwhelming, and it's understandable—filing for bankruptcy is a significant and often stressful event. When preparing to file for bankruptcy, it's common for potential filers to wish they could "exclude" a particular debt from their bankruptcy petition, perhaps a credit card used for work expenses or a beloved pet's medical care.

However, no matter how important a specific card might seem, excluding personal credit card debt isn't an option under bankruptcy law. While this might seem challenging now, there are ways of overcoming a credit card loss, and most people who file agree that the practical benefits of erasing debts with a debt discharge far outweigh the temporary inconveniences.

Can I Exclude Credit Card Debt from My Chapter 7 Bankruptcy Filing?

Bankruptcy law requires you to list all debt on your bankruptcy petition without exception. (11 U.S.C. § 521.) In other words, if you owe a creditor money, that creditor must appear on your petition, even if the account has a zero balance or hasn't been used recently. This requirement ensures fair treatment of all creditors and a complete discharge of eligible debts, providing you with a true "clean slate." Learn more about where to get forms needed for Chapter 7 and what information to include in them.

Why Are Credit Card Accounts Automatically Closed in Chapter 7 Bankruptcy?

A revolving credit card account is a type of contract. Under bankruptcy law, these contracts are canceled automatically. This applies not only to credit cards but also to leases, secured auto loans, and other similar transactions. Once your credit card company pulls your credit report and learns about the bankruptcy, it will likely cancel your card. Why? Because without a valid agreement, the credit card company can't make you pay for your purchases.

Bankruptcy Cancels Contracts

Bankruptcy works by discharging the contract between you and the creditor. Not only do creditors lose the ability to collect charges incurred before the bankruptcy filing, but the lack of a valid contract could also make collecting any charges going forward difficult. (11 U.S.C. § 524(a).)Even if that weren't an issue, most creditors are hesitant to offer new credit to someone newly exiting bankruptcy due to the increased financial risk.

What Happens to Corporate Credit Cards or Authorized User Accounts in Chapter 7 Bankruptcy?

The rules differ for corporate or employer-provided credit cards, depending on your relationship to the account.

• Obligor. The account is likely in your name, and you are legally responsible for paying the debt, even if your employer reimburses you. You must list this debt in Chapter 7, and your obligation to pay it will be discharged.
• Authorized user. You can use the account; however, the account is in your employer's name, and you aren't responsible for paying the charges. You won't list this card in your bankruptcy petition.

Mistakes to Avoid With Credit Cards Before Filing Chapter 7 Bankruptcy

To ensure a smooth Chapter 7 bankruptcy process and avoid potential legal complications, it's crucial to be aware of specific actions to avoid with your credit cards in the period leading up to your filing. These actions could lead to allegations of bankruptcy fraud or other issues that might prevent certain debts from being discharged.

Credit Card Fraud Risks and What to Avoid

Many people wonder if they can use their credit cards for living expenses or even luxury purchases before filing for bankruptcy. The law allows creditors to object to the discharge of recent debts if they believe you used credit knowing you wouldn't repay (11 U.S.C. § 523(a)(2)).

• Luxury purchases. Amounts exceeding $900 within 90 days of bankruptcy are presumed to be fraudulent. The burden is on you to prove you intended to and could repay the charges when they were made.
• Cash advances. If over $1,250 and taken within 70 days, cash advances can also be challenged. (Amounts apply to cases filed between April 1, 2025, and March 31, 2028.)

Basic, necessary expenses, like food, gas, and utility bills, are less likely to be considered fraud, especially if you have a genuine need. However, keep detailed receipts in case the trustee or a creditor questions the charges. You'll want to be prepared to prove that the purchases weren't made fraudulently.

Learn more about why you should avoid running up credit cards before filing for bankruptcy.

Other Credit Card Risks to Avoid

Here are a few other things about credit cards that you'll want to be aware of before filing for Chapter 7.

• Don't pay creditors preferentially. Paying relatives and business partners during the year preceding bankruptcy, and other creditors of your choice during the 90 days preceding filing, can be considered a "preferential transfer" in bankruptcy. The Chapter 7 bankruptcy trustee can "claw back" these payments for redistribution among all creditors equally.
• Don't transfer balances. This type of action would be viewed suspiciously, and creditors might look more deeply into your case than they would otherwise.
• Don't pay tax debt with your credit card. The charges won't be dischargeable in Chapter 7. However, you can discharge credit card debt incurred when paying income tax in Chapter 13.
• Don't lie on your bankruptcy petition. Bankruptcy law requires you to list all debts on your bankruptcy petition without exception. Not disclosing all debts can result in the debt not being discharged and other penalties.

Caution. Before making significant financial decisions before bankruptcy, consult an experienced bankruptcy lawyer for advice regarding your circumstances. Doing so can help you avoid common pitfalls.

Why Lenders Offer Credit Cards After Chapter 7 Discharge

Even though you lose your cards during bankruptcy, you'll still be able to obtain a credit card after filing—possibly sooner than you might think. Once your Chapter 7 bankruptcy closes, you can begin rebuilding your credit. Many people receive new credit card offers in the mail within months of receiving their Chapter 7 discharge. While this might seem surprising, it will make sense once you understand why credit card companies will consider you a reasonable risk:

• Bankruptcy wipes out credit card debt. Because bankruptcy's clean slate usually means you have more income to pay bills, some lenders will seek you out as a customer.
• Cautious credit use postbankruptcy. Most people are careful about their credit use after bankruptcy because they appreciate the feeling of being debt-free.
• You can't file for Chapter 7 bankruptcy again soon. Because you must wait eight years before receiving another Chapter 7 discharge, the lender knows they'll have plenty of time to collect from you without concern that you'll wipe out the debt in bankruptcy.

Caution. These initial offers often come with high interest rates and annual fees. Compare options carefully before applying.

How to Qualify for a New Credit Card After Chapter 7 Bankruptcy

Rebuilding your credit after bankruptcy requires time, a plan, and knowing the types of actions credit reporting bureaus reward. Most indicate that the best approach is to have a varied credit mix, which would include one or two unsecured credit cards—typical major cards that aren't secured by money in a bank account, the property you purchase with it, or your home equity—and an installment loan that is paid in a particular number of months, like a car loan.

How Soon Can I Get Unsecured Credit Card Offers After Bankruptcy?

Typically, you'll be offered an unsecured credit card shortly after bankruptcy, which will have a relatively low credit limit and a high interest rate. As a general rule, try to hold out for a card with a larger credit limit, because it's the available credit amount that increases your score. A card with $300 limit won't do much to help your score and might hurt it. You'll find more tips in the "What to Look for in Postbankruptcy Credit Offers" section below.

When Is a Secured Credit Card the Best Option After Chapter 7 Bankruptcy?

If you don't receive unsecured credit card offers, there's another approach you could take. Consider a secured credit card, where the available credit is determined by the amount of funds deposited with the company. That might be where you need to begin after bankruptcy.

Best Ways to Rebuild Credit After a Chapter 7 Bankruptcy Discharge

You likely know what you would change about your credit habits after bankruptcy—and the tendency is likely to stay far away and avoid falling into debt again. Your instincts are good because, ultimately, the credit bureaus reward paying off balances, rather than carrying them month to month. So the goal is to use them wisely.

• Making timely payments. Once you have the proper credit mix, making timely payments is paramount. Even a single late payment can significantly damage your newly rebuilt credit score. Set up payment reminders or automatic payments if possible.
• Managing credit utilization. The larger the amount of available credit, the higher the credit score. That's why you don't want to utilize more than 30% of your available credit each month. For example, if you have a $1,000 credit limit, using more than $300 will likely impact your score negatively.
• Avoiding small credit card limits. You'll want to open cards with the most significant limits possible and pass up cards offering smaller limits. Because the amount of available credit is what increases your score, small credit lines actually send a negative signal, indicating "low available credit," and thereby decreasing your score.
• Using credit cards frequently and responsibly. Using your card regularly for small, manageable purchases, such as groceries, and paying it down or off each month, not only demonstrates responsible usage but also generates money for credit card companies. This type of activity places you in a good position to request and receive credit line increases, which increases available credit and your overall credit score.
• Having a good credit mix. This strategy demonstrates to lenders that you're an overall responsible user of credit. You can handle fixed payments over time or "installment" accounts, such as car loans, as well as revolving credit card accounts. Both types contribute differently to your score.

Tip. One of the easiest and most successful approaches to using a credit card responsibly is to use it for monthly household bills, such as electricity, water, gas, internet, cellphone services, and auto insurance. Have the companies automatically charge your credit card each month and make one credit card payment rather than four or five separate utility charges. You could use a separate credit card for groceries and small purchases. Another added benefit? You have protection against fraudulent use.

Credit Rebuilding Action Plan After Bankruptcy

The following is a short list you can refer to when rebuilding credit after bankruptcy.

• Wait for new unsecured credit offers. You will likely receive new credit card offers within months of your discharge, but be mindful of the terms.
• Start with a secured card. If you don't want to wait for a traditional, unsecured card, open one secured by a cash deposit. This is often the most accessible way to begin rebuilding credit.
• Mix your credit. Aim for a combination of secured and unsecured credit cards, along with an installment loan.
• Pay bills on time. A single late payment can harm your credit score, and it could take years for it to be removed.
• Manage credit use. Keep balances at 10% to 30% of your available credit.
• Use frequently but responsibly. Consistent, small purchases paid down monthly can help increase your credit line.
• Check your credit. Regularly pull reports. Monitor them for accuracy and to track your score's progress.

Other Ways to Rebuild Credit After Bankruptcy

Following the techniques outlined above will help increase your credit line. Your available credit will follow, driving up your credit score. You can also ask a trusted family member with a high credit score to add you as an authorized user to their credit account. It works to increase your score without your participation.

If you rent or lease, your landlord might participate in a reporting program that rewards you with timely monthly payments. You might be able to include utility payments, as well. Discover additional ways to rebuild your credit in 'Steps to Cleaning Up Your Credit Report'.

Chapter 7 Bankruptcy and Credit Cards: FAQs

Below you'll find answers to questions you might have about your credit cards.

• Can I get a credit card while my Chapter 7 bankruptcy case is pending?
• I'm struggling with household expenses before filing. Are there alternatives to using my credit cards that I should consider?
• What's the difference between secured and unsecured cards?
• When will I qualify for an unsecured card?
• Will I ever qualify for a home loan after filing for Chapter 7?
• I understand I should monitor my credit after bankruptcy, but how do I do that?
• Is there a simplified action plan for rebuilding credit?

Can I get a credit card while my Chapter 7 bankruptcy case is pending?

Generally, no. Even if you managed to receive one before the Chapter 7 filing appeared on your credit, the lender would likely revoke it as soon as they found it through routine credit monitoring.

I'm struggling with household expenses before filing. Are there alternatives to using my credit cards that I should consider?

You can use credit cards for essentials before filing for bankruptcy, but to avoid fraud allegations, you'll want to avoid purchasing luxury items and taking out cash advances. Another approach is to check with local assistance agencies for help with food and utilities. Some bankruptcy attorneys provide local program information.

What's the difference between secured and unsecured cards?

Qualifying for a secured credit card requires depositing money—for example, $300—to protect the lender from loss. The deposited amount sets the credit limit. By contrast, an unsecured credit card doesn't require a deposit.

When will I qualify for an unsecured card?

Many people receive unsecured credit offers shortly after bankruptcy. If you don't, explore options online. Suppose you don't receive any and must start with a secured card. In that case, it will likely take a year or two to qualify for an unsecured card, depending on the lender's requirements.

Will I ever qualify for a home loan after filing for Chapter 7?

Most people are surprised to learn that, if you meet the income requirements and work to rebuild your credit, you can qualify as soon as two to four years after receiving your bankruptcy discharge. Learn more about getting a home loan after bankruptcy.

I understand I should monitor my credit after bankruptcy, but how do I do that?

Every year, you're entitled to free credit reports from each of the three major credit bureaus—Experian, TransUnion, and Equifax—through AnnualCreditReport.com. A good practice is to order a report from one of the bureaus every four months, rotating through the bureaus over the course of the year. Each period, check for incorrect reporting and unusual accounts or activity.

Is there a simplified action plan for rebuilding credit?

Yes. Here are the steps refined down to an easy-to-follow process:

• Obtain a secured credit card post-discharge.
• Use it for small, regular purchases.
• Make timely payments, keeping utilization low.
• Explore obtaining a small installment loan if needed and manageable.
• Transition to an unsecured card when your credit improves.
• Continuously monitor your credit reports and score.

Need More Bankruptcy Help?

Did you know Nolo has made the law accessible for over fifty years? It's true, and we wholeheartedly encourage research and learning. You can find many more helpful bankruptcy articles on Nolo's bankruptcy homepage. Information needed to complete the official downloadable bankruptcy forms is on the Department of Justice U.S. Trustee Program.

However, online articles and resources can't address all bankruptcy issues and aren't written with the facts of your particular case in mind. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.