Dear Opening Credits,
I have been paying on Chapter 13 for almost 54 months. Am I allowed to get new credit cards opened since I am still in Chapter 13? Do I need permission from the trustee? – Michael
You must be nearing the end of your Chapter 13 bankruptcy because most last between three and five years. Since yours has been active for 4½ years, the end is definitely in sight!
Because this type of bankruptcy requires you to send payments to the courts that are then distributed to your creditors, the experience is often quite stressful. Your financial situation is closely monitored by the trustee whose role is to ensure that the creditors receive their fair share. Among its positive aspects is that you get to delete your debt, keep all of your assets and be relieved of the remaining portion of any unsecured balances when it’s over. The downside is that you’re living on less and typically not allowed to take on any new credit obligations while the bankruptcy is in effect.
This doesn’t mean that getting a credit card is impossible. You just need to get permission from the court or trustee first. If you have consistently made your bankruptcy payments on time, chances are greater that your request for a credit card would be granted than if you have faltered with your payments. Also, the debt you can get into with the credit card also should not impact your ability to pay your bankruptcy obligations, so a credit card with a $200 limit might be approved, but getting a card with a $20,000 limit is unlikely.
I see nothing wrong with asking the trustee if you can apply for a low limit credit card. Be prepared to make a strong case. Explain that it’s not because you are trying to pay for something you cannot afford, but that you want to re-establish your credit rating. Emphasize that you will charge only small and necessary items and will always pay your bill in full. By not carrying a balance you will use the card as a payment tool, not as a loan lasting more than 30 days. Additionally, by sending payments on time and in full you will be establishing a perfect payment history.
By being upfront with your intentions, you will show the trustee that you are financially responsible and knowledgeable and that the account will not jeopardize your ability to fulfill the demands of the bankruptcy.
Know that if you pursue a credit card without formal authorization, you run the risk of the Chapter 13 being dismissed and not receiving the final discharge of remaining balances. You’ve come too far to put the benefits of the bankruptcy in peril, so don’t even think about it.
Of course, your request may be rejected, and that’s OK. In mere months you will be done with the bankruptcy and free to do what you wish without any legal oversight. At that point, you can apply for a credit card at your discretion.
Be smart about the process of getting a credit card, though. Check your credit scores so you can pursue the right credit card for you. Both VantageScores and FICO scores start at 300 and go up to 850, but don’t worry too much if your scores are at the bottom end of the scale. As long as you have a regular income and money to put down, you should be able to qualify for a secured card. These cards are collateralized by a cash deposit, so issuers take little to no risk in offering you a credit line that is often equal to the security amount.
Apply for one card that best matches your credit rating and needs. When you get the card, follow the plan you offered the trustee: Charge a little, pay it all and always by the due date. This way you will improve your credit rating, and the bankruptcy notation will fade into the past until it can no longer be listed at all.