Submitted by Rachel R on Tue, 05/27/2014 - 7:56pm
Can you get a secured credit card during Chapter 13 bankruptcy?
Image source: Wonderlane via Flickr Creative Commons
One of the best ways to rebuild your credit after a bankruptcy discharge is obtaining a secured credit card. But what happens when you get turned down for a secured card? Why does this happen and what does this mean for your ability to rebuild your credit after an insolvency? Today we explain why denial of secured credit cards is most common for those in Chapter 13 repayment and what you should do about it.
What determines acceptance for a secured credit card?
Just like for a standard unsecured card, any card issuer will run a credit check on your prior to accepting your application for a secured card. A recent bankruptcy filing will show up, as will the total amount of debt you're dealing with. If you are deep in unpaid debt prior to filing for bankruptcy, you can expect to be declined for both unsecured and secured cards. Likewise, if you have just filed for a Chapter 7 and don't have your discharge yet, expect a “no” and the same if you recently filed a Chapter 13. You don't need stellar credit, but you do need to show you can make regular monthly payments.
Why will a secured credit card issuer decline you?
It may seem like a no-brainer since a secured card is secured by a cash deposit you make to the issuer, but if they think you're going to be a hassle that will cut into their profit, the issuer will decline you. Also, if they believe you won't be able to afford the monthly payments – which you still have to make – they will decline you because they won't want to incur the expense of collections activity that will cut into their profits. If you are in the repayment period for a Chapter 13, especially in the early months or years, it's likely you'll be declined.
Why are recent Chapter 13 filers typically declined?
The tenets behind Chapter 13 is that you're given the opportunity to pay catch up your back debts over time. To do this, the Trustee will insist that your payments pretty much max out your disposable income. This means that, especially in the early years of your repayment, that you won't have any excess income to devote to new debt. With no bandwidth to make payments, it makes sense that a card issuer will likely turn you down.
What can you do about getting a secured credit card during Chapter 13?
There are a couple different approaches to take in this situation if you absolutely must have a credit card for car rentals for business travel or the like. First, if your spouse didn't file with you but can't get an unsecured card because of your money woes, they may be able to get a secured card and add you as a user. Similarly, you may be able to put up the deposit and get a close friend or relative to take out an unsecured card and make you an authorized user to help you out.
If card issuers decline you for a secured card and you don't have someone willing to step up on your behalf, you'll need to wait until you're further along in your Chapter 13 repayment and have some of your debts cleared away. If you're turned down, wait six months then apply again and then give it a try every six months until you're approved.
If you're deep in debt and need a solution to get you back on track, contact the law offices of John T Orcutt for a free consultation on Chapter 13 bankruptcy.
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