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What Happens to Joint Accounts or Authorized Users When Main Card Holder Files For Bankruptcy?

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Here is a question from a reader:

Hi,
I have a credit card which I’ve had for years. When my daughter, at age 17, went to college, I got her a card for emergencies. She didn’t sign for it and we didn’t ask for joint account. She used it a few times but since had paid it off. I went through a financial struggle and used the card myself to the limit and now am in BK13. They shifted the debt to her, changed the name on the account and sent it to collections. It now shows on her credit report and we have never given them her SSN. I don’t understand? Can this be?

Mr Donald Harless Jr

Answer – Donald, though you think it is a joint account, it may well be that your daughter is just an authorized user. But I’ll try to explain the consequences of your situation.

If she is just an authorized user

  • Yes – your delinquent account can be reported in your daughter’s credit report – Even if your daughter is an authorized user, the credit card company can report on a delinquent account on your credit report and her credit scores will be affected. It works positively when she was trying to build her credit but will work negatively against here. Yes, your daughter did not sign anything, there is no federal law prohibiting the credit bureaus from not reporting such measures
  • How to find out if she is just an authorized user or a joint account holder with you?

    I suggest you ask your daughter to get a copy of her three credit reports (from Experian, Equifax and TransUnion) and thoroughly comb through them. If she is just an authorized user, it will show up as an “A”. If it is a joint account, then it will show up as “J”.

    If she is an authorized user, then this are your action steps

  • Do not pay anything to the collection agencies – Even though your bankruptcy filing, or late payment or whatever shows up in your daughter’s credit report, paying off those debt WILL NOT improve her credit score because it is already classified as delinquent. Even if she helps you pay it off, the account will remain on her credit report for seven years. Secondly, she is absolutely under no obligation to pay it off if she is an authorized user.
  • Challenge the account under question – Write to the credit bureaus and challenge the account. If the credit bureaus cannot validate this within 30 days, then they would have to remove the account.
  • Using Validation against collection agencies – If your daughter ever answer a call from the collection agencies, simply ask for a name and an address and then HANG UP. Write to them requesting a validation of the debt. Many times, they are unable to validate it and they will magically disappear! Send all correspondence using “certified mail” and keep all records.

    (having said that, if you are in the middle of filing for chapter 13, you will be on “automatic stay” which means your creditors are not allowed to contact you)

    But what if she is indeed a joint account holder

    Since you are filing under chapter 13, by definition, you and your attorney will have to present a payment plan to your creditors. You will have to present a plan to the judge and you will also have what is called a 341 meeting with your creditors. This is when your attorneys should all these sorted out.

    I do not know how long you are in the process of your chapter 13 filing, but depending on your state laws, it may or may not be too late to remove your daughter as a joint account holder. And since the account has been sold to a collection agency, it may probably be too late.

    But if your daughter is indeed a joint account holder, then your bankruptcy attorney should know about this and have all this sorted because the debt will not be wiped out and you will have to negotiate your payment plan. In this case, you best bet is to consult your BK attorney.

    To sum up – There is a higher chance of removing the credit item from your daughter’s credit report if she is an authorized user. But if she is a joint account holder, that is a different story. Her credit report will take a big hit. Best to consult your BK attorney.

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    One Response to “What Happens to Joint Accounts or Authorized Users When Main Card Holder Files For Bankruptcy?”

    1. Mike Says:

      Question:
      I recently filed a Chapter 7 bankruptcy. I believed that my son was only an authorized user for the card. He was in fact a joint holder. He recently received a letter addressed to both of us, at his place of residence. While the salutation is addressed to him, my name is on the letter and shows through the transparent address space on the envelope. Have they improperly contacted me by doing this?

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