Bankruptcy and Joint Credit Cards...
So, you are wondering "whether you are affected if your partner has filled bankruptcy and you own a joint credit card"? Well, you've come to the right place. In this article I will explain how this will affect you and whether it will hurt your credit.
The question above has become a common one as bankruptcies have continued to rise during these bad economic times. This is a question that must be answered by an attorney as state laws vary widely on joint debt responsibility.
In large part, the answer depends on how the credit card was obtained. If both spouses signed as applicants for the credit card account, responsibility for payment is shared.
If you were listed as an authorized user on the credit card but your name was not on the application for the credit card, you may find you have no legal obligation for payment of the credit card debt.
If you co-signed a credit card application and only your ex-wife filed bankruptcy, you alone may be responsible for the entire balance. If you were only an authorized user, you should not be held responsible and the debt can be dismissed through your ex-wife's bankruptcy.
The nature of the authorized user is often questioned by lenders. In some cases, the credit card terms state an obligation automatically assigned to authorized users. However, this is not always supportable by law and is best left to an attorney to analyze and possibly argue in court.
Even if the terms and conditions of the credit account claim an authorized user is responsible for the debt should the account holder default, the legality of that statement can be disputed and may not be allowed to stand.
Another factor to consider is what type of bankruptcy your ex-wife pursued. If your ex-wife filed Chapter 7 Bankruptcy, what happens to joint credit card accounts? The goal is for the Bankruptcy Court to seize assets owned by your ex-spouse and sell those assets to settle as much of the debt as possible.
Today, the person filing Chapter 7 Bankruptcy often has no assets to seize. They may exempt their mortgage and car loan from the bankruptcy. If that is done, the lenders for those loans re-affirm the loans and your ex-wife will continue to make payments on them and keep the house and car.
Asset seizure is often associated with small business bankruptcies or with the filing of a rich person who owns significant assets in their name. Most bankruptcies today are filed to eliminate credit card debt or medical bills the consumer is unable to pay. There are no assets to sell so the debts are dismissed in total.
In this case if your ex-wife filed bankruptcy, what happens to the joint credit card accounts is that you become responsible for paying off that debt in full. If your ex-wife filed Chapter 13 Bankruptcy, the Court mandates payments over a term of several years and the lender agrees to the lesser payoff.
Because payments are being made on the account in agreement with the lender through the Bankruptcy Court, you will not be responsible for paying off the entire account balance. However, you will still be responsible perhaps for payoff of half of that debt.
Problems to Watch Out For
If your ex-wife filed bankruptcy, what happens to a joint credit card could affect your credit negatively. As a co-signer you are not only responsible for charges you have made to the account or for 50% of the account balance. You might be held responsible for the entire balance of that debt.
It is also possible the bankruptcy of your ex-wife could show as an entry in your credit file because of the joint credit card account. This is good reason to carefully monitor your credit report and obtain an attorney's advice on how such reports and obligations are addressed in the laws of your State.