How Authorized User and Joint Accounts affect Bankruptcy Proceedings


In 2017, 740,000 bankruptcy petitions were mainly from debts that were consumer in nature. The Federal Reserve also estimates household debts to be about $13 trillion. The top consumer debts are mortgages at $8.8 trillion, student loans at $1.4 trillion, and credit card debt at around $1 trillion.

Consulting a bankruptcy attorney is sometimes the only way out for many families facing crashing consumer debts. Unfortunately, filing for chapter 7 will have an impact on your credit score. It is important to manage all aspects of bankruptcy to avoid further complications down the road.

In this article, we look at joint account and authorized accounts and what to do when faced a bankruptcy case:

Difference between Joint and Authorized Account

A joint account holder has an equal responsibility to the account as the primary account holder. They can make modifications and pay for bills whenever you can’t fulfill them. But with an authorized user, they can use the credit card, although it is not possible for them to make changes or pay for expenses.

Authorized User and Chapter 7 Bankruptcy

When an authorized user files for bankruptcy, it does not affect your report. Your credit report and your partner are completely separate. Also, the previous actions of the authorized user will not affect your credit history. Only your account names and details in the public record are taken.

As a primary account holder, it is advisable to remove authorized users before consulting a bankruptcy attorney. You should wait at least four weeks before the case to allow for the credit reporting agencies to update the records. If you file too quickly after removing the account, it will most likely be recorded as an error.

Joint Account and Bankruptcy

If your partner has a joint account and is seeking the services of debt elimination lawyers, you should remember that your accounts will be included in the proceedings. Trustees sometimes pursue the cosigners even more than the primary account holder filing for bankruptcy. To avoid these issues, there are two things you can do:

  • Negotiate with Credit Card Company: Before the proceedings begin, talk to the credit card issuer. Depending on their policies, you can have the account removed. Ensure that the issuer is informed weeks before the proceedings. Should the company agree, you can prevent your account from being added to the case.
  • Close the Account: You can talk to your bankruptcy lawyer so that you close the account before the court hearing. Some banks can choose to freeze the account as soon as you file. You can contact your trustee or debt elimination attorney to have it unfrozen.

Can you pay an Authorized user’s Debt?

If you are an authorized user and you opt to file for chapter 7, another account holder can help you pay the debt. Under chapter 7, you do not have to come up with a repayment plan. A trustee will take the nonexempt property you listed, and sell it to recover the debt from the proceeds.

Your partner may be an authorized user with debt. In such instances, you can use your credit card to help them pay. However, it is not possible to take new credit with chapter 13. Lack of access to lending can make it difficult for you to carry on with your day-to-day business. You can file a motion through your bankruptcy attorney, to request and apply for credit.

Some lenders can give you credit even after your chapter 13 discharge. However, the loans come with high-interest rates, at least for the first few years. Avoid taking any more debts if possible during this period and work to improve your credit score.

In Conclusion

Rising consumer debts have prompted individuals to apply for chapter 7 bankruptcy. It is wise to take time to understand the type of account you have and what the implications would be during bankruptcy. Your bankruptcy attorney can guide you through the process, to eliminate the possibility of liabilities and risks.

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