Thursday, August 9, 2012

After Bankruptcy Beware Those Easy to Get, Unsecured Credit Cards

Bankruptcy tanks your credit score
One of the most common questions I used to receive from clients was "How do I fix my credit after this bankruptcy is over?" I answered that question so many times I seriously considered typing up and printing leaflets and just pushing them across the desk every time I heard that one. While I'm not going to go too deeply into fixing your credit after your bankruptcy, I will tell you this: Beware the credit card offers you get immediately following your bankruptcy's discharge.

Unsecured Credit Cards After Bankruptcy

Just about anywhere you look on the internet you'll see piles full of drivel about how consumers who received a recent bankruptcy discharge don't have the credit to qualify for traditional, unsecured credit cards and should aim for a secured card if they want a jump start on rebuilding credit. The reason this misconception is sung from the mountaintops is because, in a logical world, that's how business would work. Even if your bankruptcy was the result of circumstances outside of your control, that doesn't change the fact that a bankruptcy within your credit history practically screams "I can't manage debt! If you lend to me I will default on payments, file bankruptcy again and you won't get a penny of your money back! I AM A BIG RISK!"

But, as you probably know by now, credit card companies are anything but logical.

Why Credit Card Companies Target You After a Bankruptcy

Believe it or not, credit card companies don't make much profit from "good" customers. Customers who pay their bills on time, qualify for a low interest rate and carry low balances – in otherwords, those that play the game right – are little more than an irritation for the credit card company.

After bankruptcy, you're the perfect target
Credit card companies make the most profit off those who are struggling. If you accrue late fees, run up high balances and have a hellacious interest rate, you can rest assured that your credit card company loves you. It's milking you dry and you can barely keep your head above water. Score!

So now that we've established the type of customers credit card companies aim to attract, lets discuss why these creditors target people with a recent bankruptcy discharge.

You're Not a Bankruptcy Risk 

Once of the major factors credit card companies examine before approving your application is your "bankruptcy risk score." A variety of factors contribute to this score but the score itself is self-explanatory. The company wants to know exactly how likely you are to file for bankruptcy. Unsecured debt, such as credit card debts, are the last in line for payment in a bankruptcy, and credit card companies hate to lose money.

No matter who you are or how stable your financial situation is, you carry a bankruptcy risk – regardless of how remote that possibility may feel. The only people who are not a bankruptcy risk are those who cannot file for bankruptcy. Who can't file for bankruptcy? Why, those that just received a bankruptcy discharge, of course!

That's not entirely accurate. You can file for bankruptcy any time you wish, no matter how recently your previous bankruptcy was discharged, but that doesn't put your current creditors in danger becuuse while you can file bankruptcy, you cannot have your debt discharged. 

The Post-Bankruptcy Credit Card Trap

If you are not eligible for a bankruptcy discharge because of a recent discharge, you are the most attractive person in the world to unsecured creditors. You have a history of incurring too much debt and you have absolutely no way (for two to eight years, anyway, depending on what type of bankruptcy discharge you received) to escape that debt. The credit card company is banking on the fact that you'll incur too much debt, miss payments, incur higher interest rates and fees and take on the roll of cash cow for the company. Sure, you can get rid of the debt after the waiting period for re-filing bankruptcy passes, but in the meantime the credit card company can milk you dry.

And the Unsecured Credit Card Offers Arrive...

Do you really think the credit card companies are going to let a sweet deal like a person who can't manage money and can't get a bankruptcy discharge slip through their fingers? Not a chance. So don't be surprised when you start getting unsolicited credit card offers in the mail. Secured, unsecured, doesn't matter – they'll be there.

You've got mail

If you're positive that you're in a stable financial state that will allow you to apply for and manage a new credit card account, go for it. Keep in mind that the interest rates on these cards are often astronomical. Rather than use them as your everyday purchases card, its better to make very small purchases and pay them off in full each month. This way you don't incur scary interest charges and you're rebuilding your credit at the same time.

If the unsolicited credit card offers are too tempting or just an annoyance, you can stop them from arriving by visiting the website of Opt-Out Prescreen, a joint effort on behalf of the credit bureaus and the Federal Trade Commission. Opt-Out Prescreen lets you stop unsolicited credit in its tracks and rebuild your post-bankruptcy life on your own terms.


  1. I remember when I got my first credit card and put myself into so much debt that I had to call my dad's lawyer Francis S. Hallinan Esq for advice. I am glad I didn't have to file for bankruptcy. I had no idea credit card companies target people that filed for bankruptcy. That is sad.

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