Can You Keep A Credit Card Through Bankruptcy?

I have a JC Penney credit card with $324 on it. I’ve recently had to file for bankruptcy (process not yet complete) as I lost my job in 2010 and am still unemployed.

My husband lost his job in June of this year so I suddenly found myself with my savings dwindling while I was paying on my credit cards.

I’d like to keep the JCP card. Does it make sense to pay off the $324 balance so that JCP will continue to provide me with credit? I have always paid this card, along with all the others and my credit score is (or was) in the 700+ range.

Thanks! Jeanne

Dear Jeanne,

First of all, if you have filed bankruptcy and had a balance on your J.C. Penney credit card at the time of filing, you are required to list the card as a debt. This means that J.C. Penney will receive notification of the bankruptcy.

Sometimes it’s best to pay off the card before filing bankruptcy, but even then you’re at risk of being questioned for the payment (depending on how close to the bankruptcy you paid it off). You could also end up paying and having the card cancelled anyway. There is a chance that J.C.P. will cancel your card upon notification of the bankruptcy. Occasionally, creditors will reaffirm your debt (sometimes with better terms, ie lower APR) and allow you to keep the card because a) they want to keep your business and b) they don’t lose the $324 you still owe by letting you keep it.

Either way, if you are able to keep the J.C.P. card, you will need to weigh the cost of paying it off or continuing to make payments. In the end, will it be worth having a card with J.C. Penney? What if you do pay it off and it ends up cancelled anyway? In this scenario, you will have wasted (although it was owed) $324. As an unemployed couple, that money could most likely be used for something else – quite possibly even food.

So I figured we should take a closer look at the JC Penney card to help you decide if it’s something you should try to keep.

Extra Benefits of the J.C. Penney Credit Card

Since it is a store card, you will need some extra benefits for carrying it otherwise there’s no reason to have it unless you’re just a hardcore JC Penney shopper.

According to the JCP web site all cardholders receive:

• Automatic enrollment in JCP Rewards
• Cardholders earn 1 point per dollar spent at J.C. Penney stores and online at jcp.com
• You also earn 25% bonus points when you use your card.
• Qualifying purchases this month earn double points next month
• You have the opportunity to earn points for a $10 certificate each month.

JC Penney Gold and Platinum Cardholder Benefits:

If you have the Gold or Platinum card you receive a birthday reward certificate, special savings certificates, notification of special financing events and other basics like zero fraud liability for unauthorized use, free shipping and ID theft protection.

You didn’t state which card you have or how much you use it, but based on the extra benefits that are included with the J.C. Penney credit cards, one thing is certain. None of them offer cash in your pocket. Additionally, although there is no annual fee for the card, the APR usually starts at around 26.99%, although again yours may be better.

In your situation, I don’t anticipate that you will be using the card enough to earn any of the extra points or certificates to use on future purchases. Instead, your intention is probably to hang on to a card so you will have one post-bankruptcy.

Incidentally to alleviate some of the worry, the J.C. Penney card is one of the cards that is considered bankruptcy friendly, and easy to obtain after filing bankruptcy. I’m not certain however, if that applies when the card is included in a bankruptcy.

After you file bankruptcy, you will be able to start repairing your credit and rebuilding with other credit cards. You will be able to obtain credit again, sometimes within a year after filing. It is however, unlikely that your credit score will remain in the 700s. According to Fair Issac Corporation’s (FICO’s) web site,  if you have a spotless credit report and high credit score, you may experience a larger drop in your score than if you already had a low credit score and lots of negative items. All in all, take advantage of the fresh start that bankruptcy will allow you and use it to get back on your feet again.

Rather than holding on to a card that offers little real benefit, consider rebuilding your credit by using a secured credit card once you are back on your feet and have your savings built up. You can read more about the benefits of secured credit cards here.