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Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
•
Bankrate.com |
Will Mom's bankruptcy hurt
me?
Dear Dr. Don,
Hello. My question is: How will bankruptcy affect
my credit history? My mother is thinking of filing because one of
her credit cards is maxed out at $11,000. The credit card company
told her that it would take her 50 years to pay off the balance.
She helped me build my credit by giving me a credit
card where she is the primary cardholder and I am the secondary
cardholder, so whatever we charge on the card appears on just one
bill. So when she files for bankruptcy, do I need to file too, since
I'm the secondary cardholder? My mom tells me they will stick me
with the bill if she files and I don't since we are both cardholders.
Please help. Give me some tips or other options because I don't
want a bankruptcy on my credit report for the next seven years.
Thank you for your time and help,
Brenda Bankruptcy
Dear Brenda,
If you're an authorized user on the account, the payment history
can be reported on your credit report, including your mother's bankruptcy,
but you don't have a legal obligation to repay the debt. Not being
responsible for the debt doesn't mean that your credit score and
credit history won't take a hit, as discussed in greater depth in
this Bankrate feature.
As the primary cardholder, your mother can remove you as an authorized
user on the account. She should make this request in writing to
the credit card company and you should make sure that the change
shows up on your credit report prior to her filing any bankruptcy
petition.
If you are a joint account holder, then both you and
your mother are responsible for the debt. You should review the
credit agreement to determine whether you are an authorized user
or a joint account holder. Ask the credit card company to provide
you with a copy of the cardholder agreement if you're not sure of
your status on the account.
A Chapter 7 bankruptcy stays on a credit report for
10 years, while a Chapter 13 bankruptcy is reported for seven years.
With a Chapter 13 bankruptcy filing, the petitioner works with the
court to structure a repayment plan and has to keep to that plan
over three to five years before any remaining eligible debts are
discharged. In a Chapter 7 bankruptcy filing, there is no repayment
plan. That's why a Chapter 7 filing stays on a credit report for
a longer period of time. Learn more about these two types of bankruptcies
by reading the US Courts' Bankruptcy
Basics.
If you're responsible for the high balance on this
card, then you should work with your mother to pay it off instead
of forcing her into filing for bankruptcy. It may not be on your
credit report, but she's going to have to live with it on hers over
the next decade.
-- Posted: Feb. 6, 2004
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