Credit Card Companies Preying on People Coming Out of Bankruptcy

There’s a disturbing trend among credit card companies these days. They’re specifically targeting people just coming out of bankruptcy and using fraud and trickery to get them to “reaffirm” debts they’ve previously discharged in the bankruptcy proceedings.

It works like this. Let’s say you have a Visa card with a $5,000 debt on it when you declare bankruptcy. That debt is discharged forever, unless you “reaffirm” the debt. “Reaffirmation” refers to the process whereby a consumer agrees “voluntarily” to recognize the validity of a debt and pay it, although it has previously been discharged in bankruptcy.

After your bankruptcy, Visa decides to trick you into reaffirming your debt. Visa offers you a new credit card, but if you were to read the fine print, you would realize that in signing up for and accepting the new card, Visa is rolling the discharged debt of $5,000 into the new card. Viola! You need credit to begin your life again after bankruptcy, and you’ve just reaffirmed $5,000 of debt you’ve previously discharged.

Quite a trick, no? Well, the question becomes, how do you prevent this from happening. The answer is simple: when you come out of bankruptcy, be very careful about re-establishing your credit. Do it sort of like a teenager would who’s just beginning his or her credit life. Start with low-balance cards you can afford and keep the balance low, and obviously make the payments regularly and pay more than the minimum payment. Do that for a while (year or so) and the credit card company will likely accept any request from you to start raising your credit line. However, you will need to avoid what got you into credit trouble in the first place. Limit your credit cards and also limit your use of credit cards. Pay with cash or checks. It may take a bit of time but once you’re out of bankruptcy, you don’t want to return there ever and it takes some discipline to start running your life better. And, over time, you’ll have excellent credit because, ironically, you’re not using all of your credit and that which you are using, you’re using responsibly.

I hope this short note finds you well and please continue to have a good summer. Thanks for reading.

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