The Bankruptcy Code requires a debtor to list all creditors in his bankruptcy schedules. However, a “creditor” is typically defined as someone to whom the debtor owes money. Specifically, 11 U.S.C. B’ 101(10)(a) defines a creditor as an “entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor.”
So, if the debtor has a credit card with a zero balance, the issuer of that card IS NOT A CREDITOR, and therefore, the debtor need not disclose his bankruptcy to that credit card company. BUT, that’s not the end of the story.
Card issuers write very one-sided credit card agreements that seem to get modified all the time. The Terms and Conditions always includes the following language:
Default – You and your Account will be in default of this Agreement if: . . . you become insolvent, assign any property to your creditors, or go into bankruptcy or receivership . . .
Cancellation of your Account – We may cancel your Account or suspend your ability to use the Account at any time, with or without any specific reason and with or without prior notice to you as permissible by applicable law.
So, even if a debtor has a zero balance credit card, the issuer has the absolute right to cancel it, but how does the credit card issuer know the debtor filed bankruptcy if the debtor does not give the issuer notice of the bankruptcy?
Credit card companies use sophisticated systems, like Automated Access to Court Electronic Records (AACER), to provide virtually instant data of new bankruptcy filers. They compare multiple pieces of debtor information with their account holder databases. If enough pieces of a debtor’s data match an active account, the credit card issuer assumes a match.
Once the credit card company has a match, does it always close the credit account? I honestly don’t know, but I do know that debtors often use zero balance credit cards after filing. Maybe the card company is making the decision to keep the account open or maybe they failed to make a match. In either case, it is important to know that, despite not listing a zero balance credit card in the bankruptcy schedules, the credit card can get cancelled.