Bankruptcy / How Authorized Users Affected

Understanding How an Authorized User or Joint Holder Affects a Bankruptcy

Written by Ben Tejes
Updated Apr 25th, 2024

When filing bankruptcy, a common concern is how bankruptcy affects joint holders and authorized users of credit accounts. Many people have joint accounts with their spouses. Because most couples file joint bankruptcy cases, the concern about a joint holder or authorized user is of no concern.

However, there are cases where only one spouse files a Chapter 7 or Chapter 13 bankruptcy case. There could also be cases where a parent, child, relative, or friend files for bankruptcy relief and they are on another person’s credit account. If you are in this situation, it is important to know how filing bankruptcy affects joint holders and authorized users on credit accounts.

Does It Affect the Other Person’s Credit If I File Bankruptcy as an Authorized User on Their Credit Card?

No, it should not affect the other person’s credit rating if you file for bankruptcy relief as an authorized user. An authorized user is someone added to a credit account by the cardholder. The authorized user may use the credit account.

However, authorized users are generally not legally responsible for repaying the debt. For the credit card company to legally hold the authorized user liable for the debt, the authorized user must have signed a credit agreement acknowledging their financial liability for the debt.

With that being said, notifying the account holder you intend to file bankruptcy is wise. The creditor may notate that an authorized user filed bankruptcy relief on the cardholder’s credit report. A notation should not impact the cardholder’s credit score.

Authorized User Credit Reports

A few creditors may report the bankruptcy filing on the cardholder’s credit report in error. Therefore, it is wise for the cardholder should check their credit reports to ensure that your bankruptcy filing is not notated at all or only shows a notation that does not affect their credit score.

You can obtain free copies of your credit reports every 12 months.

What is the Cost and Do I Qualify For Chapter 7 Bankruptcy?

Before you go too far with questions, you may want to understand whether you would even qualify for bankruptcy and how does the cost of bankruptcy compare to other options. If you do not qualify for Chapter 7 bankruptcy, what would the Chapter 13 plan payment be?

As such, we built the following Chapter 7 vs Chapter 13 calculator based on the official bankruptcy forms to help you estimate the cost and qualify for Chapter 7 bankruptcy and compare that to Chapter 13 bankruptcy.

What If I Am a Joint Holder on a Credit Card and File Bankruptcy?

Joint account holders are a different matter. Each joint holder is responsible for the entire debt on the account, even if they did not make the purchases. When you sign a credit application as a joint holder, you explicitly agree to repay the entire balance if the other person fails to make the payment. That is also true for co-signers.

Therefore, if you file for bankruptcy, your legal obligation to pay an unsecured debt may be discharged through your Chapter 7 or Chapter 13 case. The bankruptcy discharge means the creditor cannot take any action to collect the discharged debt.

However, if the joint holder did not file for bankruptcy relief, they are liable for the entire debt owed on the account. Therefore, even if they never purchased anything using a credit card or a credit account, they are legally liable for the debt.

The creditor could file a debt collection lawsuit against the joint holder or co-signer. Depending on the law in the state where the person lives, the creditor could obtain a wage garnishment order if they receive a judgment against the person.

How Can I Protect a Joint Holder if I File Chapter 7 or Chapter 13?

If the debt is not paid, the joint holder faces legal action, and their credit rating will decrease. Luckily, there are a couple of options.

The joint holder may pay the debt in full or make the minimum monthly payments. While you are in bankruptcy, you cannot pay the credit card payments because those payments could be considered a preference. Additionally, you cannot pay off the debt immediately before filing bankruptcy because that could also be considered a preference.

However, once you receive your bankruptcy discharge, you may voluntarily resume payment of the credit card debt to protect the joint holder from liability and damage to their credit rating.

Talk with a Bankruptcy Lawyer Before You File Chapter 7 or Chapter 13

While this is a brief overview, your situation may involve other factors. Therefore, it is always wise to consult a bankruptcy lawyer about your situation before filing for bankruptcy relief.

We can help you find a bankruptcy lawyer near you. Most bankruptcy attorneys offer free consultations, so it does not cost you anything for the first appointment.

You may also want to explore bankruptcy alternatives for debt problems. Ascend can help. We offer our services free of charge. Whether you need debt relief options or help determining what bankruptcy option is best for your situation, we can help. Contact us today to find out how we can help you find an affordable solution to your debt problems.