Asked in Bankruptcy for Alabama

Q: I live in Central Alabama, and I’m two and a half years into a chapter 13 bankruptcy. Am I aloud to open a credit card?

I want to start rebuilding my credit eventually, if I am able to open one whats the process like?

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1 Lawyer Answer
W. J. Winterstein Jr.
W. J. Winterstein Jr.
  • Bankruptcy Lawyer
  • Boyertown, PA

A: Section 364 of the Bankruptcy Code provides for obtaining credit while in bankruptcy. While the statute speaks of a "trustee", that term includes a debtor in possession, which is what a Ch. 13 debtor is.

Section 364 authorizes obtaining unsecured credit "in the ordinary course of business".

As a practical matter, it may well be more difficult to procure an unsecured credit card from any US card issuer. Ordinarily, the issuers wait until the bankruptcy discharge has been granted (otherwise, any debt run up on a credit card might be discharged as well).

Some card issuers offer a "secured credit card". You deposit cash with the card issuer, and the amount of the deposit is your credit limit. When you use your card to make a purchase, they charge you interest of like ten percent on the amount of the charge until you pay that. All the while, they are holding your cash deposit and not paying you interest on that deposit. Obviously, it's never smart to do a secured credit card.

Better to wait until after your discharge is granted. Several issuers will mail you offers within six months of the discharge, if not sooner. The interest will be excessive. To reestablish credit, pick one, use it sparingly for a year, and always make payments on time. After a year, ask for an increase in the credit limit.

David Luther Woodward agrees with this answer

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