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. Credit card debts are included in the bankruptcy, so the credit cards are also cancelled.
There is no sense in continuing to struggling with minimum payments because you want to keep the convenience of a credit card. It is possible to eliminate credit card debt by filing a bankruptcy or consumer proposal.
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:
Ted: It’s almost impossible to live in our culture without a credit card. So if you’re speaking with anyone, a credit counsellor, debt consultant, a trustee, one of the things you want to ask them is, ‘how am I going to re-establish myself? How am I going to live?’
Doug: ‘If I have to travel, if I have to go with my son’s hockey team and book a hotel, how am I going to do that if I don’t have a credit card’. It’s a valid concern. My advice is well, while you are bankrupt or in a consumer proposal it’s more difficult to have a credit card, so what you’re generally going to want to do is have another family member for example get a credit card and put you on as a supplementary cardholder, you can get a prepaid credit card.
Ted: Prepaid credit cards is like a gift card. You go load it up with money it looks just like a Visa or a MasterCard and you can use it the same way. It’s not a great solution long term but it will immediately get you the credit card that you want. The better solution is something called a secured credit card. Where you put money on deposit, the lender will give you a credit limit on your credit card equal to what the money is you have on deposit, as long as you make your monthly payments the deposit is intact. Usually within 18 to 24 months they release your deposit back to you and so not only have you still got the credit card, but you’ve got money from the savings now returned to you in 2 years that you can use for something else.
Doug: There are always strategies to deal with whatever the issues are, but you’ve got to focus though on is the big picture. The big picture is you’ve got a huge amount of debt that you’re not able to service, and so by filing a bankruptcy or a consumer proposal you can get rid of that debt, that’s what gives you the ultimate fresh start.
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.
If you are struggling with debt, contact us today for a free consultation. You don’t have to decide right away but getting a debt assessment will help you find options that can give you a fresh financial start.
- Do I Need to Include All my Creditors and Debts in A Bankruptcy?
- Credit Cards: Before, During and After Bankruptcy (or Proposal)
- How Much Debt Does it Take to File Bankruptcy in Canada?
- What are My Options When In Debt if My Income is from Social Assistance, Pensions, or Support Payments?
- 5 Ways To Survive Without a Credit Card