Prepaid Debit Cards and Personal Bankruptcy

Many bankruptcy clients have prepaid debit cards to list among their assets.  This is not usually a problem as the balance can be exempt from the Trustee.  How does this work?  In a Chapter 7 personal bankruptcy, you are entitled to certain exemptions:  your home, your car, and your personal items, are all exempt up to a certain amount.  Your prepaid debit cards are simply one more asset that needs to be evaluated before filing for a fresh start in bankruptcy.

But are they a good idea?

Prepaid Debit Cards and Your Credit

Prepaid Debit Cards will have no effect on your credit score, positive or negative.  Thus, folks who are completing bankruptcy and wish to improve their credit score should factor this in when using prepaid debit cards regularly.

To improve your credit score, you should use a secured credit card.  With secured cards, there is money at a financial institution backing up the card, rather than money already on the card; a subtle but important difference in this instance.  A credit card should be your next step; working in increasing the credit extended will increase your credit score.

Prepaid Debit Cards and Checking Accounts

In a recent study by the Pew Charitable Trusts (PCT) it was reported that many consumers have both prepaid debit cards and checking accounts; some have begun to use the cards with no bank account.  The prepaid debit cards are simply a way to manage money in a fashion that is somewhat new.  Back in the day, folks had a checking account for managing their short term money, and perhaps a savings account for managing slightly longer term money.  Now, however, when more and more people simply “swipe” to pay their bills, the prepaid debit card is becoming more and more common for use in addition to the checking account, even including the checking account debt card.

In 2011, consumers loaded $57 billion onto prepaid debit cards; in 2012 the amount was up to $64 billion.  The PCT report found that the dominant users were under 50 years old.

Prepaid Debit Cards and Fees

We are not undertaking survey of all fees; however, it is important for consumers to know the fees associated with their services.  The financial companies that offer prepaid debit cards, including Green Dot and NetSpend now include many of the major United States banks.  NetSpend advertises that you will get monies quicker if you deposit your paycheck or Social Security check automatically with them.  American Express advertises that they only charge one dollar per month.

What are the fees?  Not all consumers know or understand the fees.  They simply use the cards and are unaware of the monthly fees being withdrawn.  Those fees range up to $15 per month according to the PCT report.  But there are many other, sometimes hidden, fees.

Who regulates these cards?  It’s not clear.  Furthermore, if your card is lost or stolen, there is no guarantee that the issuing institution will refund any of your monies.  This is unlike a credit or debit card where the bank will limit your liability.

Experienced Bankruptcy Attorney

If you need to manage money and use a prepaid debit card, consider the costs.  If you are trying to rebuild your credit, consider a secured credit card.  If you are considering personal bankruptcy, contact Attorney Neil Burns who has been representing consumers since 1985.

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