During a recent blog on a bankruptcy forum website, one debtor raised the question of whether or not you should try to obtain a secured credit card account during the process of a chapter 13 bankruptcy.
Defining a Secured Credit Card Account
A secured credit card account is similar to a debit card account in that both have money deposited into the accounts to secure them by a cardholder who owns the account. The main difference in the two accounts is that in a secured credit card account, the card is considered a credit account instead of a debit account. Normally in a secured credit card account, you must deposit 100% or more of the total amount of credit desired. The deposits are often held in special savings accounts, and the user is given a limit on how much credit they can be issued.
Like an unsecured credit card account, a depositor in a secured credit card account still makes payments on the amount used in the account. Unlike an unsecured credit card card account, the cardholder cannot use any more than the amount still held in the account. Once the accounts are emptied, the cardholder must deposit more into the account if they want to continue the service. The cardholder usually makes deposits into the account on an ongoing monthly basis to keep up their credit limit.
Advantages for Owning a Secured Credit Card Account
Here are some advantages for owning a secured credit card account:
An individual with a negative or no credit history can potentially build credit because the credit card company holding the secured account reports regularly to major credit bureaus.
Regardless of your credit history, secured credit card accounts are easier to obtain if you have the money available to support such.
In some cases, some secured credit card account issuers will offer incentives for using their accounts. Credit card issuers may offer these incentives because they have noticed that many depositors perceive they have something to lose if the balance is not repaid, and therefore, delinquencies are reduced.
Disadvantages for Owning a Secured Credit Card Account
Here are some disadvantages for owning a secured credit card account:
Penalties, fees, and interest are almost always higher in secured credit card accounts than in other credit accounts. The total debt can far exceed the original deposit in some cases.
Some secured credit card accounts require other assets to secure the account. Your assets will then be at risk if you get into trouble making your payments.
Owning a Secured Credit Card Account During a Chapter 13 Bankruptcy
Depending on the bankruptcy district and U.S. Trustee, some courts will allow you to obtain a secured credit card account to rebuild your credit. Other district courts may not allow you to get a secured credit card account because these types of accounts are perceived to have a certain amount of credit risk.
If you have a good reason for wanting to build credit during the chapter 13 bankruptcy process, it is always a good idea to discuss with your bankruptcy attorney the pros and cons of having a secured credit card account.
Latest posts by admin (see all)
- Free Information Resources for Filing Bankruptcy - August 15, 2013
- When Creditors Change the Rules in Mid Stream - August 13, 2013
- Understanding the Concept of a Claim in Bankruptcy - August 8, 2013