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Can you keep a credit card open in bankruptcy if there is no balance on the account? May people assume that you can, but bankruptcy is not so simple.

Keeping a credit card open with no balance in bankruptcy seems like a no-brainer. Since the card account is in good standing, why wouldn’t you be able to keep it through your bankruptcy?  If you can keep your car through your bankruptcy, surely you can keep a credit card open with no balance.

Unfortunately, you generally cannot keep a credit card open with no balance in bankruptcy. Balance or no balance, it doesn’t matter; you won’t be allowed to keep any credit-card accounts open through your bankruptcy case. The reason why you can’t keep a no-balance card account open all the way through bankruptcy doesn’t have anything to do with the Bankruptcy Court.

The reason why your credit card accounts with no balances get closed through bankruptcy is that when you file for bankruptcy, the credit-card companies that have your accounts receive notice of your bankruptcy filing. These companies then shut down your accounts, even those no-balance accounts that are in good standing.

But why would the credit card companies who have your no-balance credit card accounts receive notification of your bankruptcy? You don’t owe them any outstanding debts. Not only that, the no-balance credit-card accounts probably won’t be listed on your bankruptcy paperwork, so the Bankruptcy Court isn’t made aware that you have any no-balance accounts that are in good standing. So the court has no way to notify those credit-card companies.

The answer to how the credit-card companies find out about your bankruptcy is that they are using some method of discovering whether a customer of theirs has filed for bankruptcy. Often, they subscribe to some expensive, sophisticated software program that automatically notifies them when their customer has filed a bankruptcy case. Then the company closes your credit-card account, even when it has always been in good standing.

You may think that the credit-card companies don’t like bankruptcy filers. You’d generally be right. But if you think about it, this policy of closing down no-balance credit-card accounts protects the credit-card company.

In bankruptcy, a creditor can get in trouble for trying to collect a debt against a person who has filed bankruptcy. An ordinary monthly bill is considered an attempt to collect a debt.

So what would happen if a bankruptcy filer forgets to put down a credit-card account that has a balance in their bankruptcy paperwork? Then that credit-card company would not get notified of that bankruptcy case; the company could easily send a monthly bill without realizing the person is in bankruptcy. So you can see how this policy of automatically shutting down any open credit-card account upon any notice of that customer’s bankruptcy filing protects the credit-card company.

That said, the person who is filing for bankruptcy must be careful, as well. The law requires anyone who is filing for bankruptcy to disclose everything they own and everything they owe – all debts and all assets. You’re not allowed to leave anything out. Even student loan debts that are not getting discharged in the bankruptcy must be listed.

Penalties for the failure of a bankruptcy filer to disclose everything in their bankruptcy papers could be severe. That’s why you occasionally see stories in the news about people who have committed something called “bankruptcy fraud”. These people may or may not have actually intended to defraud the Bankruptcy Court, but a court somewhere found that they intended to keep one or more important pieces of information from the Bankruptcy Court, which, as you might imagine, is not a good thing.

Do you have any questions about the bankruptcy process? Schedule a phone consultation with attorney Jennifer Weil by calling (201) 676-0722.