Most credit cards are unsecured. This means that the debt is not backed up by a specific asset. The credit card company simply trusts you to pay the bill on time, but you can use that card for a variety of different purchases, and there is nothing that the lender could reclaim if you do not pay. This is much different than a car loan, for instance, where the lender always has the option to reclaim the vehicle.
After filing for bankruptcy, one issue that you may run into is that it is difficult to get an unsecured credit card because of the impact the bankruptcy filing has on your credit score. But you may be able to apply for a secured credit card. To get one, you make a cash deposit, which sets the limit on the credit card. If you put $1,000 down, for instance, then you have a $1,000 limit. Even if you fail to pay off the debt, the lender can always just keep the deposit.
Rebuilding your credit score
As such, secured credit cards are an excellent tool for rebuilding your credit score after bankruptcy. Using the card to make purchases and then paying off the debt on time every month is slowly going to improve your score. There is no risk to the lender because you pay them the security deposit up front, and it gives you a chance to demonstrate that you are a reliable borrower.
In many cases, people will slowly repair their credit score until they qualify for unsecured credit cards, mortgage loans, car loans and other lines of credit. The secured credit card is simply the first step that allows them to craft a positive financial future.
If you are interested in bankruptcy and learning about all of your options, it can be very helpful to work with an experienced law firm.
