Are credit cards helpful or harmful after bankruptcy?

On Behalf of | Apr 21, 2024 | Bankruptcy

Many people who file for bankruptcy do so – at least in part – because their credit card debt has gotten out of control. It may not be the only debt that they have. They could also be facing things like medical debts, mortgage loans, car loans, student loans and much more. But those credit cards play a significant role.

As a result, you’ll get people who will swear off credit cards after filing for bankruptcy. They blame those cards – and their very high interest rates – for the bankruptcy. They believe that they should never use credit cards again. But is this actually true? 

Secured credit cards

One thing to remember is that secured credit cards can actually be helpful after bankruptcy. Filing for bankruptcy is going to lower your credit score. But using credit cards and then making payments on time can increase that credit score again. This can help you get other lines of credit – like a mortgage – in the future. It is important to work on rebuilding your credit score after filing, and secured cards are one way to do it.

But secured credit cards are a bit different, in that you have to put a down payment on the table when you get approved. The maximum balance is the same as this down payment. There’s no risk to the lender, who can always keep the down payment and pay off the balance of the card. But if you make those payments on time, your credit score goes back up, and you can give yourself the financial fresh start that you’ve been looking for.

In other words, the role of credit cards in bankruptcy is fairly complex. If you’re thinking of filing, you must be aware of all the proper legal steps to take.