What Happens to Credit Cards When Creditors Go Bankrupt?
Credit card companies, like any other company, can go out of business. When the company goes bankrupt, card holders are generally at the mercy of the terms of bankruptcy. While there is little you can do to prevent a card company from going bankrupt, you can learn about the process so you aren't caught off guard if it happens to your card issuer.
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Your Credit Card
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Once the credit card company that issued your card goes out of business the creditor will no longer be able to pay businesses for purchases, and your card will become worthless. In general, even if a new buyer comes along and obtains your debt or the credit card account, you'll either be prevented from using your card further or be issued a new card by the new creditor.
Time Frame
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How long you have to use your card before it becomes worthless depends on the circumstances of the bankruptcy. Some companies that declare bankruptcy do not go out of business but merely use the protections afforded by bankruptcy to restructure debt, meaning they obtain new terms with their own creditors. In these bankruptcies, you may be able to continue using your card without interruption. In other bankruptcies your card might become worthless almost immediately.
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Your Debt
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If you carried a balance on your credit card and owed the company money, this is a valuable asset to the credit card company as it goes out of business. Your debt will usually be sold to another company. Your only choice, if you would prefer not to stay with the new company, is to pay off your debt and cancel your card.
Payment Requirements
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Your card company going out of business does not act as a "get out of jail free" card, and you cannot simply forget about the debt. If your credit card company goes bankrupt and sells your debt to another company, your new creditor gains all the legal rights to collect on the debt as soon as it purchases it from your old creditor. It can pursue you for any failure to pay. However, if the company changes the terms of credit, such as increasing interest rates, it must notify you as it would for any change.
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References
- Photo Credit two credit cards isolated on the white image by Elnur from Fotolia.com
