debt

3 ways to keep your debt from harming kids

Justin Harelikq_v2.gifDear Bankruptcy Adviser,
My question is about pending judgments. I owe $18,000 in credit card debt. I have two old cars paid for and I work at a job making $14 an hour, 29 hours a week and my expenses outweigh what I make. When my kids were in college I put them on my credit cards as authorized users, but I was the responsible paying party. My question is if I was to get a judgment would the credit card company try to get the money back from my kids?
-- Sandy

a_v2.gifDear Sandy,
The short, but incomplete answer is "probably not." Your kids might be legally free of any liability, but that doesn't prevent a collection agency from attempting to collect from your kids after buying the credit card debt from the original creditor. I will explain.

Authorized users are permitted to use a credit card, but are not liable for the debts incurred on that card. It is very common for parents to put their children on a credit card account for school purposes.

In most cases, the credit cards also show up on your kids' credit reports. Your children's credit scores increase with a good payment history as long as you're in good standing. Once you become delinquent on the card or file for bankruptcy, your children will get negative credit marks.

I am concerned that your kids signed a credit application or that you gave their Social Security numbers to the creditor. More likely than not, you gave their numbers to the creditor in order to have the card reported on their credit report. If so, then the kids could have to deal with negative credit impact and potential lawsuits.

You see, when you fall behind on credit card debt, the original creditor does one of two things: sues you to collect on the debt or sells the debt to a collection agency, which will likely sue you to collect.

The original creditor is less likely to go after your children because it has records that they are authorized users only. However, a collection agency gets very limited information when it buys debt. These agencies could be very aggressive and attempt to collect from your kids.

Many times, the collection agency will sue your children with very little notification and sometimes, with no notification at all. It's true. I've seen people receive judgments against them without even knowing they had been sued.

If your kids were sued, you would have a good defense to any lawsuit. You only gave them the "authority" to use the cards. Having a good defense is one thing. Having to pay for an attorney to defend your kids is another. It could cost a few thousand dollars.

Here are three ways to prevent problems for your kids:

  • Remove your kids' names from the account immediately. It is hoped you are still in good standing with the creditor because the original creditor will be more willing to remove them from the cards.
  • If that doesn't work, try to remove the line from your children's credit reports. Your kids will need to challenge the debt directly with the credit bureaus and claim that they are not the responsible parties.
  • Make sure to track the debt. The credit card debt may be sold from the original creditor to a collection agency. Make sure to watch for letters from the agency. You can proactively challenge the debt with the collection agency when it claims your kids are liable.

Obviously, you do not want to harm your kids because of your unfortunate financial situation. You must try hard to stay on top of how the debt is passed around. It is hoped everything can be resolved quickly, but you need to be diligent to protect your children and their credit.

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

Read more Bankruptcy Adviser columns and more stories about debt management. To ask a question of the Bankruptcy Adviser go to the "Ask the Experts" page, and select "Bankruptcy" as the topic.

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