What is the best credit card after filing Chapter 13?

By , CardRatings contributor
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Under Chapter 13 bankruptcy protection, the courts severely limit your access to credit cards. But you may be able to start rebuilding your credit with either a secured credit card or a prepaid debit card.

Generally speaking, your bankruptcy trustee won't permit you to have unsecured credit cards during your Chapter 13 reorganization. In fact, you usually can't use credit cards or amass any "non-emergency" debt above $1,000 while in Chapter 13. And don't forget, your Chapter 13 proceeding will last a minimum of three years and a maximum of five years. During that time, you will pay your creditors either all or a portion of what you owed.

As the Chapter 13 continues, it's common for the courts to deny any request for new credit - even if it's just a request to open a credit card. To obtain new credit of any form while in Chapter 13, you must first get the written permission of your Chapter 13 trustee.

So before you seek any credit cards, make sure you're not running afoul of your state bankruptcy laws. Ask your attorney if you're allowed to have a credit card. And then double-check your lawyer's answer with the trustee.

Secured credit card

If you truly need access to a credit card, it's possible that you may be allowed to open a secured credit card, where you put up a deposit and those funds act as your credit limit. If you charge and pay consistently on your secured credit card, it can be a good tool to help you rebuild credit during and after your bankruptcy.

Another option, a prepaid debit card, won't be reported to the credit bureaus and thus doesn't boost your credit rating. But a prepaid credit card nonetheless may give you the flexibility you need when a credit card is required - say, for an online purchase or for a hotel stay.

While a Chapter 13 filing can let you keep certain assets, like a home or a car, you generally don't get to keep credit cards open, mainly because the court doesn't want you to keep running up debt.

Credit card use is frowned upon, because using them means you could keep revolving debt and you could charge on those cards over and over - getting yourself back into the financial trouble that may have led to your bankruptcy in the first place. Obligations such as mortgages and car notes are different. Even in bankruptcy, you won't be adding more debt to those loans.


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