Bankruptcy Credit Cards

Written by Kevin Tavolaro
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Bankruptcy is a legal condition intended to get debtors out of debt. Although it is federally regulated, bankruptcy is often declared voluntarily by individuals or organizations with no other means of alleviating debt. However, bankruptcy can also be compulsory if enforced by three or more creditors attempting to reclaim delinquent accounts.

When a debtor declares bankruptcy, their assets are liquidated, and the total value is applied against any outstanding balances with their creditors. Although this still might not be sufficient to cover their debt, the process relieves the debtor from any further responsibility. While bankruptcy can remove all standing debts, it also has far-reaching implications that can significantly alter a debtor's future credit rating.

Benefits of Bankruptcy Credit Cards

When bankruptcy is declared, the debtor's credit current credit report is eliminated. Although this seems to promise a new start, the debtor is also unable to apply for or receive any kind of credit for a period of seven years. Even after the period has passed, the debtor has to start again, with no credit at all, bad or good. No credit can often be just as much of an impediment as bad credit, leaving the debtor in need of a solid means for reestablishing credit. This is done with bankruptcy credit cards.

Bankruptcy credit cards are secured cards, obtained by a debtor once the bankruptcy period has passed. Secured credit cards are called so because they are "secured" by a cash deposit equal to the card's line of credit. The cash deposit ensures that the card's balance cannot be left unpaid, as the payment for any outstanding balance can be automatically withdrawn from the deposit. Some bankruptcy cards can also be secured by a savings account, wherein the line of credit is equal to the size of the account. After using a secured card over a period of time, a debtor will start rebuilding their credit, as there is never any chance of the card reflecting poorly on their credit rating. After the credit rating has been restored, debtors will often be eligible for an unsecured credit card. The initial deposit for the secured card is also restored to the cardholder when the account is closed.

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