Options are few when a co-signed credit card goes bad
When you co-sign, a big debt can become yours
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
I got my daughter a card in
1994 with a credit limit of $300. I was unaware that she had kept this card all of these years. In
August of last year, she defaulted on this card. However, the balance is
now $29,000. And the issuer has come after me. It wasn't until November that I even
knew anything about this. I did not know the number of the card nor have I ever
received any statements regarding this account. Again, I was not aware that she
still had the card.
I am on Social Security and
my wife is on disability, and there is no way we can pay this debt. My daughter
will not talk to me about it. And her husband told me that the best thing I
could do is get a lawyer. I have worked very hard to maintain my credit, and
this has destroyed me. The card companies that I had have all lowered my credit limits,
and that is not the bad thing. It is my name that I worry about so very much. I have
done without many times to make sure my bills were paid and on time. The card
company wants to settle, but they will turn it in as a bad debt anyway, and
then they want to give me a 1099-C tax form for that amount of money. I just don't have
that kind of money. Is there anything I can do to save my name? -- Paul
Can you feel the heat emanating from my
boiling blood? You should. It really burns me up when people take advantage of
their loved ones.
But don't think you are free of some
culpability. While you were being generous, you also dropped the ball. Because
you willingly guaranteed this account, you ought to have kept an eye on
where it was bouncing -- which, by the looks of things, was all over the
Before getting to resolution options, I
want to cover what likely happened.
The credit card that you co-signed for
your daughter started out with a low credit limit, but over time, the issuer
must have increased it. This means that she must have used it appropriately for
a while. However, she eventually charged too much and stopped making payments,
causing the account to go into default. Since she abdicated responsibility,
they turned to you. On the original application, you not only agreed to have
the statements sent to her rather than you, but to pay up if she faltered.
I'm not rubbing salt in your wounds,
but I must point out that you would have been aware of the mounting mess long
ago had you regularly checked your credit reports. You'd have seen everything,
from the monthly payment history to the current balance. As soon as you saw
that she was out of control, you could have stepped in and stopped her.
Now what to do? It doesn't appear that
anyone is willing or able to pay the debt in full, which would be the best-case
scenario. A debt settlement is on the table, however, and that might be fine,
too, even with the tax issue. Your credit is already negatively affected, and
the financial break might be worth it. Still, you'd need the lump sum, which no
one seems to have.
That charming son-in-law of yours did
present an interesting solution. Normally I don't hesitate to suggest legal
action in these scenarios, but I sense a problem. The debt is too high for
small claims court, so you'd probably have to involve lawyers, who tend to be
pretty pricey. More, if your daughter and her husband have no assets,
collecting on a judgment will be tough even if you do sue and win.
An alternative is to ask the creditor
if they'll resume installment payments. If so, perhaps you can write the checks
and have your daughter reimburse you. This could stave off a lawsuit against
you -- which is a real possibility. Then again, you and your wife don't have
attachable wages or bank accounts bursting with money, so they'd be unable to
Another option is for your daughter to
file Chapter 13 bankruptcy. With a Chapter 7 bankruptcy, the entire debt might land in
your lap, but with a Chapter 13, she can pay on it and you'd be protected. Of
course, you can't force them to file -- and it might not even be appropriate --
but if it works, it could help all of you get back on track.
Finally, regarding your name, let
"saving" it go. Do not define yourself by your credit score or history. You've
been a good dad, who did his best to help his daughter but may have trusted her
See related: You are not your credit score, Debt settlement: What it is and how it works, All that you need to know about credit reports, 1099-C shock: Forgiven debt can carry a big tax burden
Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.
Send your question to Erica.
Published: February 16, 2011
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