A fundamental element for persons filing for Bankruptcy protection requires a Debtor to disclose all outstanding liabilities. So what happens if I have a zero balance on my credit card or I pay the credit card off before I file? Said another way, if the card is no longer a liability do I have to list it? The answer is no, it is not required to be listed. However, the card may not be open after the case is filed and the assumption the card will be available for post-bankruptcy use is often a mistaken one.
This is a question that comes up frequently from consumer clients worrying about their credit or wanted to rebuild their credit after a Bankruptcy is filed. It’s natural, and prudent, to think about how one’s credit can be improved after the filing of a Bankruptcy case. If there is any outstanding debt over $100.00 then I normally do not recommend paying off credit cards before filing hoping it will be open in the future. It may not be. It is true the creditor won’t be alerted by the Bankruptcy Court, but they will eventually see it on the credit report when they do their semi-annual review. At that point the creditor can cut off the credit card simply because a Bankruptcy was filed even if the creditor didn’t suffer a loss. If the client had a good payment history, there is a good chance the creditor will keep the account open but there is no guarantee. The discretion to keep the account open is in full control of the creditor.
It would be unwise to pay off a large balance on a credit card before filing a bankruptcy believing it will assure the use of the card after bankruptcy. This is often not the case and the larger the balance to be paid off, the greater the chance the anticipated payoff will backfire. What I do recommend is to use those funds to set up a savings account and apply for a secured credit card if a card is really necessary. Remember, you don’t need good credit to pay cash! “