Is reaffirming card debt during bankruptcy wise?The chances of still being able to use the credit card are slimBy Todd Ossenfort
Dear Credit Guy,
In
going through a bankruptcy, if you decide to enter into a reaffirmation agreement with a
credit card company, does that allow you to continue using the card?
-- Wayne
Dear Wayne,
Just so you and I and my readers are on the same
page here, when you reaffirm a debt in a Chapter 7 bankruptcy, you are
signing a legal document that removes that particular debt from the bankruptcy
proceedings. The document would state that you agree to the original terms of
the account and will continue to make payments as agreed. Most reaffirmations
are done on big-ticket items such as a house or car -- in other words, for
secured debts that you wish to keep.
I am familiar with unsecured debt being
reaffirmed in a Chapter 7 bankruptcy, but that typically happens only when the client is a
co-signer
on the debt with a nonfiling spouse, parent or adult child. When you reaffirm a
debt, you are pulling that debt out of bankruptcy protection permanently. The
point of a Chapter 7 bankruptcy is to eliminate your debt and start you fresh
on the road to financial recovery. I would suggest that you ask your attorney
about "keep and pay" as an alternative to reaffirmation. It offers many of the
advantages of reaffirmation, without the associated liability. Reaffirm a debt only if you are sure that doing so is absolutely
necessary.
You don't say why you want to reaffirm your credit
card account. If your primary reason is to keep the account open for your use,
I'd advise against it. Why? There is no guarantee that
the creditor will leave the account open. In fact, I believe it is unlikely
that a reaffirmed account would remain open.
I realize that it is difficult to accomplish many
things in our society without a credit card. However, you made the difficult
decision to file for bankruptcy, and I don't want you to be in a position where
you would be unable to make payments on your credit card account in the near
future.
My suggestion for you is to acquire a secured credit card after your bankruptcy. The card account is secured by money you deposit in
an account with the bank or credit union that issues the card. These cards
provide the same conveniences as a regular credit card, and you should be able
to qualify for one, post-bankruptcy. Compare secured credit cards carefully: Many have high fees, high rates or both. Be sure you are
getting the card that meets your needs for the lowest fees possible.
When you begin to rebuild your credit after your
bankruptcy, create a spending plan. That can help you know exactly where your money is going and ensure that you save some each month.
The only sure way to avoid unwanted debt in the future is to set
aside money for unexpected expenses we all encounter. Your
goal should be to have three to six months' living expenses in a liquid
account that has limited access.
Finally, because you are a member of the military, I'd suggest
you check out militaryonesource.com.
The Department of Defense has established this site to assist
military personnel and their families.
Take care of your credit!
See related: What is debt reaffirmation?, 6 bad reasons debtors reaffirm debt, 9 questions to ask before you reaffirm an old debt, Authors explain how to duck debt reaffirmation traps, Bankruptcy does offer a fresh start, at a high cost, Credit card glossary terms for bankruptcy
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to The Credit Guy.
Published: February 1, 2010
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