Credit Cards: Before, During and After Bankruptcy (or Proposal)

When you file for bankruptcy, you must turn over all your credit cards to your trustee, who will then return them to your credit card companies; that is the law (paragraph 158(a.1) of the Bankruptcy and Insolvency Act and Directive #3 issued by The Superintendent of Bankruptcy). Even if you have a zero balance on your card, this rule applies. The only exception to this rule is if the card you hold was issued to a third party (for example your employer, spouse or parent) and the third party confirms that you may continue to use the card. (All of these comments apply to proposals as well as bankruptcy).

During your bankruptcy, it is an offence under the Bankruptcy and Insolvency Act to obtain credit without disclosing the fact that you are an undischarged bankrupt; basically, you cannot apply for or use a credit card during your bankruptcy.

After your bankruptcy, it is safe to apply for credit cards. As a trustee in bankruptcy, I am not promoting the use of credit cards, but in today's economic climate, it is difficult to sometimes function without a credit card. Try making a hotel reservation or buying an airline ticket without having a credit card and you'll know what I mean. If you have filed for bankruptcy with Hoyes, Michalos, you will have received two financial counselling sessions in which credit repair and re-establishing your credit post-bankruptcy is discussed at length. We also emphasize the use of a credit cards as a substitute for cash, not a method of supplementing your cash flow.

Finally, you may be wondering what company in their right mind would give you a credit card as soon as you come out of the bankruptcy process. Well, it will be difficult, but there are ways to obtain a credit card. One method is to obtain a secured credit card. For example, Home Trust VISA allows you to obtain a card with limits between $1,000 and $10,000. You must put down a security deposit for the amount of your limit in full. Each month, you pay off your balance in full, and this fact is reported to the credit bureau, thereby re-establishing your credit. You can check out the details of their program at their website.

For more information about this topic, you can meet personally with one of our trustees by calling us at 310-PLAN.

Posted by Benny Mendlowitz, CA CIRP, Trustee @ 8:23 AM

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