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Bankruptcy and Credit Cards: What You Need to Know
Bankruptcy is a tough journey, often marked by financial stress and uncertainty. However, it’s not the end of the road but rather a new beginning towards financial recovery. One significant step in this journey is rebuilding credit. Among the tools available for rebuilding credit, credit cards stand out as powerful tools if managed wisely. Getting a credit card after bankruptcy is possible, but it might take some extra effort.
There are ways to rebuild your credit and get back on track financially. In this article, we’ll explore the ins and outs of obtaining and using a credit card after bankruptcy.
Quick Summary:

• Bankruptcy offers a new beginning towards financial recovery, with rebuilding credit being a significant step in this process.
• Understanding bankruptcy types, like Chapter 7 and Chapter 13, is crucial. Each is designed to address specific financial situations, guided by the United States Bankruptcy Code.
• Bankruptcy has a significant impact on credit, affecting credit scores and access to credit. However, obtaining a credit card after bankruptcy is possible with patience and responsible financial habits.
• Options for obtaining a credit card after bankruptcy include secured credit cards, prepaid cards, and credit rebuilding programs. These tools can help individuals rebuild credit and regain financial stability.
• Using a credit card wisely after bankruptcy is essential. Tips include choosing the right card, reading terms and conditions carefully, making timely payments, keeping balances low, and monitoring credit reports for accuracy.

What is Bankruptcy?
Bankruptcy in the United States offers a legal solution for individuals and businesses dealing with insurmountable debts, acting as a government-supported financial safety net to aid recovery during financial hardship. Governed by the United States Bankruptcy Code, it establishes nationwide rules and procedures for handling bankruptcy cases.
What are the Types of Bankruptcy?
There are different types of bankruptcy, but the most common ones for individuals are Chapter 7 and Chapter 13. Each type is designed to address specific financial situations.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as liquidation bankruptcy. It involves selling off assets to pay creditors. In Chapter 7, a trustee is appointed to oversee the process. 
Some assets, like a certain amount of equity in your home or car, may be protected from being sold. This means you get to keep them even after filing for bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also known as reorganization bankruptcy. It involves creating a repayment plan to pay back debts over time, usually three to five years. 
This plan is based on your income and expenses. It allows you to keep your property while making affordable payments to creditors. It’s like hitting pause on your debts and then slowly paying them off over time.
What is the Impact of Bankruptcy on Credit?
Bankruptcy can feel like a weight lifted off your shoulders when you’re struggling with debts you can’t pay. But it’s important to know that it can have a big impact on something called your credit score. Here’s how bankruptcy can affect your credit score and what it means for your financial future:
Understanding Credit
Your credit acts as a financial report card for lenders, reflecting your reliability in repaying borrowed funds. A good credit score boosts approval chances for loans and cards, while factors like bill payment timeliness, debt levels, and credit history duration influence it.
Long-Term Impact
Bankruptcy doesn’t disappear overnight. It can stay on your credit report for years, depending on the type of bankruptcy. For example, Chapter 7 bankruptcy stays on your report for up to 10 years, while Chapter 13 stays for up to 7 years.
Limited Access to Credit
After bankruptcy, getting new credit can be tough. Lenders might turn you down for loans or credit cards. If you do get approved, it might come with strings attached, like a lower credit limit or higher interest rate.
Rebuilding Credit
But all hope is not lost. Bankruptcy is not the end of the road—it’s a detour. With time and effort, you can rebuild your credit score. 
Can I Get a Credit Card After Bankruptcy?
Rebuilding credit after bankruptcy can feel like climbing a mountain, but it’s not impossible. One important step in this journey is obtaining a credit card. While it may seem overwhelming, there are options available for individuals looking to secure a credit card after bankruptcy. Here are some of your options:
Secured Credit Cards
One option for obtaining a credit card after bankruptcy is a secured credit card. With a secured card, you’ll need to provide a security deposit upfront, which acts as collateral for the credit limit on the card. This deposit reduces the risk for the credit card issuer, making it easier for individuals with a bankruptcy history to get approved. By using the secured card responsibly and making timely payments, you can rebuild your credit over time.
Prepaid Cards
Another alternative to traditional credit cards is prepaid cards. These cards work differently from credit cards because you’re not borrowing money. Instead, you load funds onto the card and can use it to make purchases up to the amount loaded. While prepaid cards won’t directly impact your credit score, they can be a useful tool for managing expenses and staying within a budget.
Credit Rebuilding Programs
Some financial institutions offer credit rebuilding programs specifically designed for individuals recovering from bankruptcy. These programs may provide access to credit cards with lower credit limits or higher interest rates, allowing individuals to demonstrate responsible credit behavior and gradually improve their creditworthiness. By participating in these programs and managing credit wisely, individuals can work towards rebuilding their credit after bankruptcy.
Whether through secured cards, prepaid cards, or credit rebuilding programs, there are options available to help individuals rebuild their credit and regain financial stability. By using credit responsibly and making timely payments, individuals can take proactive steps toward a brighter financial future.
How Do I Use a Credit Card Wisely after Bankruptcy?
Rebuilding credit after bankruptcy is like starting over on a new financial path. A key tool in this journey is obtaining and responsibly using a credit card. But it’s important to approach this process with caution and awareness. Here are some simple tips for using a credit card after bankruptcy:
Choose the Right Card
After bankruptcy, you may not qualify for all credit cards. Start with secured credit cards. These cards typically have lower credit limits and higher interest rates, but they can be a good stepping stone to rebuilding credit.
Read the Terms and Conditions
Before applying for a credit card, carefully review the terms and conditions. Pay attention to the interest rate, fees, and any other charges associated with the card. Make sure you understand what you’re signing up for to avoid surprises later on.
Use the Card Responsibly
Once you have a credit card, use it responsibly. Only charge what you can afford to pay off in full each month. This will help you avoid accumulating debt and falling back into financial trouble. Remember, your goal is to rebuild credit, not dig yourself into a deeper hole.
Make Timely Payments
Paying your credit card bill on time is one of the most important factors in building good credit. Set up automatic payments or reminders to ensure you never miss a payment. Be careful to avoid late payment charges and penalty rates if you can do so while still paying higher-priority debts. Even one late payment can damage your credit score, so make it a priority to pay on time every month.
Keep Balances Low
Try to keep your credit card balances low relative to your credit limit. This demonstrates to creditors that you’re using credit responsibly and can help improve your credit score over time. Aim to keep your credit utilization ratio below 30%.
Monitor Your Credit Report
Regularly check your credit report to make sure all information is accurate. Look for any errors or discrepancies and dispute them with the credit bureaus if necessary. Monitoring your credit report can help you spot signs of identity theft or fraud early on.
Getting Approved for Credit Cards: How Our Portland Bankruptcy Lawyer Can Help
Obtaining a credit card after bankruptcy may seem challenging, but with the help of our Portland bankruptcy attorneys at Northwest Debt Relief Law Firm, it’s possible to increase your chances of success. From providing legal advice to negotiating with creditors, our bankruptcy law firm can be your ally in rebuilding your financial future.
Don’t let bankruptcy define your future. Take control of your financial destiny and explore the options available to you. With determination and perseverance, you can rebuild your credit and work towards achieving your financial goals. 
Contact us now for a free debt solution consultation and learn more about how we can help you deal with the process of obtaining a credit card after bankruptcy and regain control of your financial future.

“You mean to tell me you don’t have any underwear!”
 
When I was much younger, I practiced bankruptcy law in Baltimore City. Judge Kiser, the bankruptcy judge, made people inventory their underwear.  
Today, the bankruptcy court in Alexandria Virginia does NOT do that. The court here is NOT interested in your underwear or any of your clothes. But there are lines of the official bankruptcy papers for your clothes and furniture; we need to fill in those lines.
When you file bankruptcy, Virginia law allows you to keep up to $1000.00 worth of clothing. Somebody would have to work really hard to sell your clothes for more than a thousand.  (Take a look at this article. Haley Marie, worked four apps for a year to sell 171 items. She made $1485. The bankruptcy trustee does not want to spend a year selling your stuff.) So, you can safely assume yours are not worth a thousand dollars to the bankruptcy court.
What About My Furniture?
Most used furniture has no value. Used furniture costs money to get rid of.
A few years ago, my wife and I decided to downsize our house in Falls Church and move to a smaller home. We needed smaller–and newer–furniture. We quickly found out used furniture costs money to get rid of. My wife found a service that came to our house with three trucks. The first truck took some very expensive pieces out to a dealer in the Shenandoah Valley. The second truck took about half of our stuff to Goodwill and the Salvation Army. The third truck took furniture we couldn’t donate to the dump.
We broke even  We made enough money off the originally very expensive pieces to cover the cost of the trucks and dump fees to get rid of the rest.
Virginia law allows you $5000 worth of furniture. If you want to spend two minutes valuing your furniture for your bankruptcy papers, look at this value chart. The value of used TVs starts at $5.
Conclusion
When filling you your clothes and furniture for your bankruptcy papers, do NOT leave them blank. The trustee can see you have clothes.  But do not stress on the values. Just fill it out.
The post Valuing Your Clothes and Furniture on Your Bankruptcy Papers appeared first on Robert Weed Bankruptcy Attorney.

Before Bankruptcy, There Are Two Ways Your Credit Score Tricks You
 
Are you worried about what bankruptcy will do to your credit score?
Your credit score is the tool the banks and credit card companies use to trick you into paying them, even when you can’t afford it. Think for a moment. Is your credit score more important than feeding your children?  Probably not.
Is it more important to pay Capital One or take care of you family?
Back in 1934, the Supreme Court said that a fresh start in bankruptcy is “of public, as well as private, interest.” Here’s what they meant. The country is better off if you take care of your family; Capital One will be ok without your help. The fear of your after-bankruptcy credit score tricks people into worrying about the wrong thing.
There’s a second reason it really is trick. When you file bankruptcy, your credit score will go up.  (At least for most people.)
I talk to people whose score is around 550 and assume with bankrutpcy it will drop into the 400;s.  The opposite will actually happen. For most people, your credit score after bankrutpcy will shoot up over 600.
Not only that. Within six months, Capital One will be offering you a new credit card.
 
 
The post Before Bankruptcy, Don’t Let Your Credit Score Trick You appeared first on Robert Weed Bankruptcy Attorney.

The very hot topic in Nebraska bankruptcy courts these days center around how courts apply changes to the homestead exemption law enacted in 2014.

The exemption protects up to $60,000 of equity in a debtor’s home, but the question is whether the exemption is limited the home or to the debtor. In the case of married debtors, do they receive a $60,000 exemption or $120,000?

In a recent court case handled by our firm (In re Hudson BK 23-80949), the Nebraska bankruptcy court clarified the limits of the exemption.

First, some background on the homestead exemption:

Neb. Rev. Stat. §40-101:  A homestead not exceeding sixty thousand dollars in value shall consist of the dwelling house in which the claimant resides, its appurtenances, and the land on which the same is situated, not exceeding one hundred and sixty acres of land.

• The original homestead law in territorial Nebraska did not contain a dollar limitation. The dollar limitation ($2,000) was added in 1875, and that amount was sufficient to exempt the entire value of an average home.
• To put that in perspective, the average cost of a home in Nebraska in 2024 is $282,000. 
• The value of 160 acres of land in Nebraska can easily exceed two million dollars.
• Over time the Nebraska legislature has watered down the homestead protection by failing to index it to inflation.

Nebraska Legislative Bill 964

In 2014 LB 964 extended the homestead exemption to protect single debtors without children.  No longer was the homestead limited to families.

LB 964 modified both sentences of Nebraska Statute § 40-102: 

1. If the claimant is married, the homestead may be selected from the separate property of the husband claimant or, with the consent of the wife from her separate property. claimant’s spouse, from the separate property of the claimant’s spouse.
2. When If the claimant is not married, but is the head of a family within the meaning of section 40–115 or is age sixty-five or older, the homestead may be selected from any of his or her property.

What is the homestead?

Reviewing the long court case history of the exemption law, the bankruptcy court first addressed the nature of the homestead: “What is a “homestead”? Is it the present worth of the exemption or is it the family home?”  Answer: The homestead is the home, not the exemption.

If the homestead is the exemption each debtor could claim the exemption, but if the homestead is the actual home, there is only one. The court pointed out that “the claimant does not claim the exemption. The claimant selects the homestead.” Since there is only one actual home the protection is limited to $60,000.

The bankruptcy court relied on past decisions:

• LB 964 did not change well-established and longstanding caselaw holding a parcel of property cannot sustain two homesteads, which change must have occurred to sustain the debtors’ two exemptions.
• It is true that a homestead cannot be occupied jointly by two families so that both will have homesteads therein. Also, it is true that if a tenant in common claims a homestead, he must occupy the property to the exclusion of his cotenants.  Luenenborg v. Luenenborg, 259 N.W. 649, 652 (Neb. 1935)
• The Nebraska Supreme Court affirmed the nature of a homestead in 1989: Analogizing to the rule that “[a] person cannot have two homesteads, nor can he have two places either of which at his election he may claim as a homestead,” Travelers Indemnity Co. v. Heim, 218 Neb. 326, 330, 352 N.W.2d 921, 924 (1984), we note that two separate homesteads cannot exist in the same parcel of land.  Landon, 438 N.W.2d at 760

In rejecting the debtor’s contention that each married debtor was entitled to a $60,000 exemption, the court made the following observation:

• LB 964 did not go as far as the debtor contends. The head of a family requirement was only in subsection (2) of § 40-102, which subsection never applied to a married couple.  Removal of the head of a family from subsection (2) did not change the law applicable to married couples who are, and were, governed only by subsection (1).
• The homestead continues to be in property, not in an “interest” in property. Finally, and perhaps most importantly, the LB 964 did not change long-standing Nebraska law holding one parcel of property cannot sustain two homesteads. Section 40-102 continues to differentiate between an individual claimant and a married claimant. The debtors’ construction impermissibly ignores the differentiation.
• Consent: The statute also retains the “consent” and “separate property” language. Under the debtors’ construction, consent becomes irrelevant. If both spouses can each separately claim two exemptions in one parcel of property, there is no need to make a claim from the spouse’s separate property. The spouse can claim the exemption on his or her own. The consent language only makes sense if the homestead remains in a singular family home, which might still be owned by one of the two spouses.

For years we bankruptcy attorneys have questioned the effect of the 2014 amendments to the homestead law, and there were rumors that perhaps a married couple could exempt up to $120,000 of their equity. However, unsuccessfully claiming a homestead exemption in a Chapter 7 case can have dire consequences, so attorneys have meekly assumed the exemption was capped at $60,000.

Our firm decided to get a ruling on the issue in a Chapter 13 case because if our challenge proved to be unsuccessful, the debtor’s home would nonetheless be protected. Although the opinion is disappointing to debtors, at least we have a clear decision on how much home equity is protected.

But good news is on the horizon. This case and others have caused our Nebraska legislature to consider an expansion of the homestead exemption, and that will be the topic of our next post.

Image courtesy of Flickr and Matt Turner