Should I Close Credit Card Accounts Before Filing Bankruptcy?
That's the kind of decision you'll have to make for yourself. I wouldn't feel comfortable offering advice on way or the other, without knowing the details of the situation. But here are some things to think about.
Do you have balances on the credit cards right now? If you're filing for bankruptcy, I would assume you still owe money to the card companies. When you close accounts that still have balances on them, the credit scoring models treat like a maxed out credit card. The available limit goes to zero when you close the account, but the fact that a balance remains makes it seem like you maxed out your cards. This will do even more damage to your credit score, in addition to what the bankruptcy filing does.
If I were you, I'd leave the balances alone for right now. After you have filed bankruptcy, you need to come up with a budget plan that makes the best use of your money ... in addition to putting you on the road to financial recovery. After the bankruptcy filing, you might want to speak with a financial advisor or credit counselor.
Or, if the balances on those cards are pretty small, you might even consider paying them off first and then closing the accounts (prior to filing bankruptcy). The more accounts included in the bankruptcy filing, the more it lowers your credit score. So it becomes a balance between what you can afford to do now, and what you're prepared to deal with later in terms of credit score damage.
Another consideration is the type of bankruptcy you are filing. If you are declaring Chapter 7, then you're basically walking away from your debts. If you're filing Chapter 13, then you will probably need to come up with a payment plan to pay off your debt (that's usually how a Chapter 13 filing works).
Like I said, I can't tell you what to do in this situation. But I hope I've at least given you some things to consider.
Let me end with a positive note. Filing for bankruptcy does not mean that you are forever "doomed." Sure, it will hurt your FICO score at first, and the filing will stay on your credit report for 7 - 10 years. But it's possible to rebuild your credit after a bankruptcy. In fact, I have a friend who has done just that, and I get plenty of emails from people who have recovered from it as well.
Hope that helps. Good luck.
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Labels: cards
posted by Brandon at
1:37 PM
