Monday, December 3, 2012

Can I Get a Credit Card With a Non-discharged Bankruptcy?

A non-discharged bankruptcy means the bankruptcy is still active. Getting a credit card with a non-discharged bankruptcy is difficult. Most banks and credit unions simply will not lend money to someone in bankruptcy, and that is what a credit card is -- an approved loan. Most banks and credit unions will consider the borrower a high-risk applicant based on the bankruptcy and likely will not approve the card for that reason alone. Exceptions are possible in limited situations, including if you offer collateral for the credit card.

Chapter 7 Bankruptcy

    Chapter 7 is a form of personal bankruptcy. It is very fast, with completion possible in about four months. People with non-discharged Chapter 7 bankruptcies usually file for credit cards and other new debt after the bankruptcy is complete. With the process so fast, there is usually little advantage for filing earlier, with lenders unlikely to approve a credit card in the middle of such a quick bankruptcy.

Chapter 13 Bankruptcy

    Chapter 13 is another form of bankruptcy chosen by individuals. It is different than Chapter 7 because it has a payment plan requiring three to five years to complete. People with non-discharged Chapter 13 bankruptcies are told by the bankruptcy court not to use credit during the bankruptcy. Diane Crandell Kearns, a Chapter 13 bankruptcy trustee in Tuscon, Arizona, reports that people in Chapter 13 usually are not allowed to even have credit cards. She reports that in some instances Chapter 13 participants can keep credit cards they had at the time of the bankruptcy, but must not use the cards. Taking on new credit -- or debt -- requires permission of the Chapter 13 bankruptcy court.

Secured Cards

    Secured credit cards are likely the only option for someone seeking a card while in bankruptcy -- assuming the bankruptcy court allows the request to reach the application process. Secured cards require a deposit into a savings account, with the credit limit equaling the amount on deposit. This protects the lender in the event the borrower fails to make payments as agreed and defaults on the card.

Credit Repair

    Credit repair is a goal of some people seeking a credit card during a non-discharged bankruptcy. They may feel that gaining approval for a card helps the credit rehabilitation process before the end of the bankruptcy. However, waiting until after the bankruptcy is just as effective. Also, secretly applying for and using credit could lead to a dismissal for the bankruptcy agreement. The Bankrate website reports that numerous credit card opportunities are often available after discharge of the bankruptcy. The offers are usually secured credit card offers initially, along with department store and gas station cards. Complete credit rehabilitation is usually possible within two or three years with steady on-time payments and low balances on all revolving accounts.

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