You Must Surrender All Credit Cards When Going Bankrupt
When you’re overwhelmed by debt and decide to take the route of personal bankruptcy, one of the legal requirements is to hand over all your credit cards to the trustee for cancellation. This process, known as Surrendering Credit Cards In Bankruptcy, often raises questions among debtors, especially when it involves cards with zero balance. Understanding the rationale behind this requirement and its implications can help alleviate some of the anxiety associated with the bankruptcy process.
The Bankruptcy & Insolvency Act
As per Section 158(a.1) of the Bankruptcy & Insolvency Act, a bankrupt individual is obligated to:
“deliver to the trustee, for cancellation, all credit cards issued to and in the possession or control of the bankrupt”
This holds true regardless of the outstanding balance on the card, even if it’s zero.
Why Surrender Zero Balance Cards?
Some might wonder why they need to surrender a card that doesn’t hold any debt. The reason is simple – once bankruptcy is filed, the trustee is mandated to inform all creditors about it. If a zero balance card is not included, the lender may not be notified promptly, leading them to inadvertently extend credit without knowing about the bankruptcy.
Potential Credit Cards After Bankruptcy
Bankruptcy doesn’t necessarily mean the end of your credit card usage. There are several ways to obtain a credit card after you’ve been discharged from bankruptcy, and in some cases, even during the bankruptcy process. Let’s explore these options:
1. Supplementary Card
If you have someone who trusts you completely, they can name you as a supplementary cardholder. In this scenario, the account holder assumes all responsibility for any incurred debt, but you can still use the card and gradually rebuild your credit.
2. Prepaid Card
Prepaid cards function like a debit card – you load it with cash and spend until the balance depletes. However, these cards often come with high loading fees and should only be used when there are no other payment alternatives.
3. Secured Card
Secured credit cards are often offered to individuals recovering from bankruptcy or with bad credit ratings. The card works like any other, but spending is limited to a pre-deposited amount. This deposit serves as your credit limit and helps establish a payment history and demonstrate credit worthiness.
Conclusion
Surrendering credit cards in bankruptcy may seem like a daunting task, especially when it involves cards with zero balance. However, understanding the legal rationale behind this requirement and knowing that there are credit options available post-bankruptcy can help ease some of the stress associated with the process. As always, it’s essential to seek advice from a financial advisor or bankruptcy professional to understand the full implications of your decisions and to chart the best path forward.
