It makes sense why if you carry a balance on your credit cards you must give up your credit cards when you file bankruptcy or a consumer proposal. The debts are included in the bankruptcy, so the credit cards are also cancelled.
But what happens if you have a credit card that has no balance owing? Are you still required to surrender that card?
The short answer is yes.
Section 158(a.1) of the Bankruptcy & Insolvency Act states that a bankrupt shall:
deliver to the trustee, for cancellation, all credit cards issued to and in the possession or control of the bankrupt
The law is clear. You are required to surrender your credit cards, whether or not there is a balance owing.
Why does this law exist? Should it not be up to the credit card issuer to decide whether or not you can keep a credit card with a zero balance owing at the time of your bankruptcy?
Yes, it should be their decision, and that’s the point. The trustee is required to notify all creditors of the bankruptcy, so if the zero balance credit card is not listed, the lender may not immediately be notified of the bankruptcy. As a result, if you use your credit card, they could end up lending to someone who is bankrupt without even knowing it. That’s not fair, because they were not given an opportunity to make their own decision.
But what if you need a credit card while you are bankrupt, for travel, or work purposes, or to make on-line purchases, or to book a hotel room? Doug & Ted talk about how you can manage without a credit card during bankruptcy:
You have two choices:
First, you could ask your spouse, a family member or a friend to get a credit card with a small credit limit and add you as a supplementary borrower. The primary borrower is responsible for the card, so you want to be sure the card is paid in full each month.
Second, you could get a secured credit card or a prepaid credit card to use in emergencies. Some lenders require you to be discharged from bankruptcy before they will lend, but in some cases it is an option.
Ultimately, there are no secrets. Even if you “forget” to disclose a zero balance credit card to your trustee, the credit card probably appears on your credit report, so if any of the other creditors look they will probably see the card and start asking questions, so the best course of action is to surrender all credit cards and get a true fresh start.