Surrendering Your Credit Card in Bankruptcy
Clients who carry a credit card balance they can’t repay, worry about surrendering their credit cards when they choose to file for personal bankruptcy.
When credit cards play a significant role in your financial health, it can be difficult to let go.
With over 20 years of experience in dealing with bankruptcy and helping people settle their debts, we’ve met a large number of clients who have asked us if they really needed to surrender all their credit cards.
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They will need their credit cards to book a family holiday, support their child’s education, or sign up for a health and fitness program.
As such, we’ve heard the same plea during our consultations.
But, they say, do I have to surrender my credit card in bankruptcy?
Our trustees understand where their clients come from and why many want to keep their credit cards, but the answer remains the same.
Yes, you should surrender your credit cards.
Here’s why it can make a difference to your personal bankruptcy:
The logical argument about surrendering credit cards
People who file for personal bankruptcy struggle to keep up with the necessary payments.
As a result, the debt grows until it runs out of control and requires professional debt settlement services.
Consequently, if you can’t cope with due balance, it makes sense to surrender your credit cards.
From the perspective of someone facing financial difficulties, getting rid of your credit cards means you don’t have to maintain credit card payments.
According to the Bankruptcy & Insolvency Act, all credit cards are included in the bankruptcy and must be surrendered to the licensed insolvency trustee.
Upon surrendering, the credit cards can be cancelled, which will settle the debts with credit card companies.
What about surrendering credit cards with no balance?
The Bankruptcy & Insolvency Act also includes credit cards with no balance.
The law exists to allow all creditors to make the best decision about potential clients.
Indeed, the trustee has to inform all creditors of the bankruptcy.
The process of notifying creditors stops any undergoing or possible legal actions regarding due payments.
Additionally, it also warns creditors about lending money to someone bankrupt.
While you may not have any balance on a specific credit card, failing to inform the creditor about your situation is an unlawful practice.
Your trustee, however, can recommend filing a consumer proposal instead, which allows you to keep a no balance credit card.
What if you need a credit card in bankruptcy?
The law stipulates you can’t hold onto your existing credit cards when you are bankrupt.
You could get a secured credit card, which requires a deposit payment.
For cautious lenders, the deposit offers protection.
It’s also an excellent way of rebuilding your credit score after your debts are settled.
Alternatively, you could ask someone to add you as a supplementary borrower on their credit card.
In this situation, the primary cardholder is liable for the balance.
If you want to keep a credit card with zero balance, the consumer proposal would be a more suitable debt settlement option.
Do you want to keep a credit card?
A trustee can make sense of how to navigate bankruptcy smoothly and manage financial needs.