Bankruptcy Q&A

My friend is going to file bk soon, but he wants to keep his Penney's and Sears cards.  They both have balances (not much though) and have small limits.  Should he reaffirm or not?  And will they let him keep the cards or close his accounts anyway?  He's always been current with both accounts.

Thanks!

Hi there, just a quick note to welcome you to the board. I don't have the info you need, but I'm sure someone will come along soon that can help you out.

CMKerri | Community Moderator iVillage Inc. Home & Food | iV Main

My opinion is your friend should walk away from the Sears and J. C. Penney accounts. There are a few reasons for this:

1. Forget store credit cards. When rebuilding credit start with a widely accepted credit card such as a VISA or a Mastercard. Both Penney and Sears accept these cards. I once had a wallet full of store credit cards: Sears, Penneys, Macy's, Mervyn's ... you name it I had it. No longer. Those days are gone. All those places take VISA, MasterCard or American Express. Dump store cards. They are useless open trade lines.

2. Don't hold on to credit cards because you don't think you'll get another chance for those cards or any credit again. In a word that is B^!!$h*t and a myth of bankruptcy perpetuated by the credit industry. It's a guilty trip and not one that will help your friend.

3. If your friend yields to guilty feelings and hangs on to the credit card debt, it does not mean Sears and Penneys won't close his/her accounts. Creditors typically close your current lines of credit because you filed bankruptcy. Penneys, Sears and Macy's did precisely that to me. Curiously, Macy's had a zero balance. That's right - I didn't owe Macy's anything when I filed Chapter 7 and they still closed my account - an account I had since 1975 they closed in 1997 (22 years later) just because I filed bankruptcy. Even though the bankruptcy didn't effect Macy's, I learned the rule of thumb in the industry is to close existing accounts whether or not there is an amount of money owed. Sorry are those people who keep their debt thinking it means they can emerge from a bankruptcy with the ability to charge on a credit card account. These people are always shocked to learn their account has been closed, but they still owe the money. They should have just walked away from the debt and someone should have told them the account will probably be closed as soon as the creditor gets wind of the bankruptcyy.

Obviously, for the above 3 reasons my suggestion is to walk away from the Sears and Penney's accounts. Any reason for keeping the debt is surely false hope.

Oh, remember my Macy's account that Macy's closed? They reopened it 12 months later.

Your friend will get credit again. Your friend will see that most of the accounts in existence when he/she files bankruptcy will be closed and it makes no difference if your friend decides to keep the debt. I think it's a nasty little game creditors play: guilt those in bankruptcy to keep the debt by making us think we will never get credit again, then once they have our signature that we will keep the debt, they close the account knowing full well they conned us into keeping the debt. Even through bankruptcy, the creditors still win with this type of guilt.

So my rule of thumb is to walk away from all the nonsense. Discharge the debt and start fresh. That is, after all, the entire point of filing bankruptcy.

Hope this helps.

Carolyn

I am in agreement with you on that. I was baffled about Macy's closing an account that had never been late, never over limit, always paid in full and not part of our bankruptcy. 22 long years of excellent account management and they closed the account due to bankruptcy. I called Macy's and spoke with a manager in the credit/customer account office to find out why they closed our account.

The credit manager I spoke with reminded me about creditors periodically making soft pulls "inquiries" on customers and from that Macy's discovered a bankruptcy. The policy is to close an account when a bankruptcy is filed. The fact that I owed Macy's nothing had no bearing on the decision. The company policy is the company policy and the account was closed. I asked, "Macy's never lost money on our account. The account had a zero balance due when we filed bankruptcy. The account has been in good standing for over 20 years. All positives, but Macy's closed the account anyway." "Yes" replied the manager.

I would say nearly every single account was closed except for the reaffirmed debt: mortgage and cars. A gasoline credit card (Chevron) was not closed and remains open to this day. After experiencing account closure across the board, what our lawyer also said would happen, and reading how people want to hold on to one or two accounts always makes me sit up and take notice. I remember wanting to do that myself and I am grateful someone advised against it.

Ok, I admit I do have the Macy's account but it is because they closed the account for a ridiclous reason and I wanted it reinstated. I use the account rarely, maybe once a year, just to keep it on the books. It's a very long term account on my credit history (over 30 years) and was one of the very first accounts I ever opened. So my excuse is purely a matter of principal, not a financially savvy reason, and that's why I have a department store account today. But otherwise I recommend post bankruptcy debtors rebuild credit with a widely accepted account such as a VISA or MasterCard. We have to be very cautious about running out and applying for credit and having too many trade lines open. Open one or two basic card accounts if you want and manage those well.

Have a great weekend!

Carolyn