If you’re a co-applicant or authorized user on a friend or family member’s credit account and you decide to file bankruptcy, you may worry about the impact this will have on your loved one’s credit. Let’s take a look at how filing bankruptcy could affect them.
If you’re a co-applicant on a friend or family member’s credit card, loan, mortgage, or other line of credit, then filing bankruptcy will impact them. When you and your loved one applied for a line credit as co-applicants your approval was based on your joint finances.
If you as a co-applicant file Chapter 7 bankruptcy the other co-applicant will be responsible for the entire debt and may also lose access to the credit line. However as long as timely payments are made by the non-bankrupt party, the creditor can’t accelerate payments or foreclose on the collateral. If you as a co-applicant file a Chapter 13 bankruptcy the automatic stay extends to the non-filing co-applicant.
Filing for bankruptcy tends be particularly problematic for a co-applicant when it’s a large debt such as a mortgage or car loan. It’s important to remember, just because you’re discharging your responsibility for the debt in bankruptcy doesn’t mean that your co-applicant will be released.
Authorized User Bankruptcy
If you’re an authorized user on a line of credit and you decide to file bankruptcy, this will not impact the credit rating of the primary account holder, nor will it make him/her lose access to the line of credit. However, it’s important to note that if you had a side agreement with the primary account holder that you would pay for your charges, that agreement will be discharged in bankruptcy. In fact, you are prohibited from paying off that credit card as an authorized user while your other creditors go unpaid.
To find out more about how your bankruptcy could impact a primary account holder, talk to a bankruptcy attorney today.