What happens when one of the account holders decides to file for bankruptcy?
A problematic question is figuring out whether someone is liable for the debt. Thus, it gets complicated if you are an authorized user or if you co-own an account. Have you started getting phone calls from debt collectors? Are you getting letters addressed from PO Box 4115 Concord, CA? If so, you may be wondering what your responsibility is as a joint account holder. How will it affect you if you have a joint account with the bankrupt person? Or if they file for bankruptcy and you are listed on their credit account, will it affect them? While there is always an 11 word phrase to stop debt collectors from contacting you, it may be time to consider filing for bankruptcy. Keep reading to learn more.
What Happens If I File Bankruptcy As an Authorized User on Another Person’s Credit Card?
Often, parents add their children as authorized users to their credit card accounts. Therefore, an authorized user can use the credit account to make purchases. But, what happens if the parent decides to file for bankruptcy? Will it affect the children?
Fortunately, filing for bankruptcy as an authorized user does not affect the account holder’s credit rating. Additionally, as an authorized user, you are not legally responsible for repaying any credit card debt unless you sign a credit agreement with the credit card company acknowledging your financial liability towards the debt.
However, the credit company will note that the authorized user filed bankruptcy relief on the cardholder’s credit report. However, this is just a formality, and the notation should not affect the cardholder’s credit score. Despite the legal exemption, it is wise to notify the account holder of your intentions to file for bankruptcy.
Authorized User Credit Reports
Sometimes, a creditor may erroneously report the bankruptcy filing on the cardholder’s credit report rather than the authorized user. Thus, it is important to regularly go through your credit reports to catch this error on time.
If an authorized user informs you they will be filing for bankruptcy, ensure the bankruptcy filing is notated in a manner that doesn’t affect your credit score. Request your credit report copy for free at least every year.
Filing for Bankruptcy
Before looking at the potential consequences of filing for bankruptcy with a Joint User, let’s look at filing for bankruptcy in general. There are two main kinds of bankruptcy that individuals file for: Chapter 7 and Chapter 13. Both can be incredibly effective, but Chapter 7 has stricter requirements. If you want to see whether or not you qualify, consider taking a Chapter 7 means test calculator. This can help you see what is your best option when it comes to filing for bankruptcy.
It’s also important to consider the costs associated with filing for bankruptcy. Costs vary from state to state. So if you’re considering filing for bankruptcy and wondering “how much does it cost to file bankruptcy in Indiana,” or “how much does it cost to file bankruptcy in Georgia,” then understand that the cost will be state-specific. Make sure you are researching costs that are specific to the state you live in.
What Happens if a Joint Holder on a Credit Card Files Bankruptcy?
A joint account holder is different from an authorized user. Thus, the two are treated separately in bankruptcy. A joint holder is legally responsible for the debt on the account, even for purchases they did not make. When signing the credit card application as a joint holder, you enter an explicit agreement with the credit card company to repay the credit card balance if the other account holder fails to pay.
Therefore, as a joint holder, you are liable for the entire credit card debt even if you did not make a single purchase. If the credit card debt is overdue, a creditor can file a debt collection lawsuit against both the account and joint holder. Depending on the law, the court may grant the creditor a wage garnishment order to help the creditor recover the debt.
But, if you become bankrupt and decide to file for bankruptcy relief, you remain obliged to pay until the courts grant you bankruptcy discharge. Bankruptcy discharge restricts the creditor from taking any action to recover the discharged debt. Thus, the creditor cannot sue you or contract a debt collection agency.
What Can I Do to Protect a Joint Holder if I File Chapter 7 or Chapter 13?
If you are bankrupt and have a joint holder, they are also considered liable for the debt. Therefore, you risk them facing legal action, negatively impacting their credit rating. Fortunately, there are several ways you can protect a joint holder.
You can have the joint holder make minimum monthly payments or total payments at a go. When you are bankrupt, credit card payments are considered a preference. So, you are not allowed to pay off the credit card debt before filing bankruptcy. But once you file your bankruptcy case and get a discharge, you can resume your payments toward the credit card debt. These payments will help avoid a bad credit rating and protect the joint holder from liability.
Consult a Bankruptcy Lawyer before Filing Chapter 7 or Chapter 13
Are you a joint holder or an authorized user? Filing Chapter 7 or Chapter 13 bankruptcy could affect other people. Therefore, it is essential to consult a bankruptcy attorney to discuss your situation, factors, and how filing for bankruptcy could affect other people.
Each case is unique, and the guide above just explains a standard case. Sometimes, bankruptcy cases could be complicated, especially if you have filed bankruptcy before or are not eligible for bankruptcy discharge.
A bankruptcy lawyer can also present different debt relief options other than bankruptcy. Book your consultation with us today, and let us help you decide the best debt relief option for you.
