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Is reaffirming card debt during bankruptcy wise?

The chances of still being able to use the credit card are slim

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the CreditCards.com expert

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

Answer for the CreditCards.com expert

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

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Published: February 1, 2010


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