Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Steward Radio and other programs. See her website SallyHerigstad.com for more personal finance tips and free budgeting worksheets. Ask Sally a question, or read her previous answers in the To Her Credit archive
Dear To Her Credit,
Sally, I'm in some trouble and would like your advice. For the past 10 years, my sisters and I have used my mom's credit cards as authorized signers. Recently, we have all three lost our jobs and have not been able to make the payments. There is about $40,000 in credit card debt owed.
My mom wants to go bankrupt and clear the debt, but we can't even afford that at the moment. We are three months behind on the payments. We notified them in writing about the problems we were having. They are calling several times a day, and we just ignore the calls. My mom is on Social Security and gets a small pension. She owns a home and has no other assets. Her finances are so close that most months she eats on the $200 float her bank offers on her checking account.
For years I have sent her money each month, but have not been able to since I lost my job. I am not sure when I will be able to afford to pay for a bankruptcy. One of her friends asked, "What if you just don't pay these credit cards? Your credit is ruined anyway and at 75 years old, your mom's credit would not repair regardless."
I guess my question is can they do anything to her as far as her home or small income? This whole thing is completely humiliating. I am having trouble sleeping for fear of what they might do. Any advice or help would be appreciated. We live in California. -- Amy
What a predicament! Three people losing their jobs at once is a terrible streak of bad luck.
What's not the result of luck, however, is four adults co-mingling their finances. Cases like this are the reason I don't recommend that nonmarried adults use each other's credit cards, period. Too much can go wrong. As soon as money gets tight, somebody gets left holding the debt -- and in this case it's your mom.
Los Angeles bankruptcy lawyer Leon D. Bayer has seen many similar situations in the more than 30 years he has been in practice. He has harsh words for adult children who use their parents' cards and then leave the elder person with the debt. "It is elder abuse, and it is fraud against the credit card company, and all four are co-conspirators," he says.
Even though you are only an authorized user, you're not necessarily off the hook. In normal circumstances, only the cardholder is responsible for the debt. But if the creditors or a bankruptcy trustee suspect fraud is involved, the rules can change.
"First, the credit card companies didn't count on people using the card under fraudulent circumstances," Bayer says. "They gave consent to one elderly woman."
If your mom files for bankruptcy, she could run into trouble. A person filing for bankruptcy has to provide not just a list of debts, but a thorough schedule of assets as well. According to Bayer, the courts could consider your obligation to repay Mom to be one of her assets. That could all come to light when the bankruptcy court tries to find out what was purchased with all those credit cards, and it's possible the bankruptcy trustee could then sue all of you.
If your mom had come to Bayer as a client, of course, he would have done everything to help her clear her debts, regardless of how she got them. "I'd tell her there might be problems, but as an attorney, you have a duty to help clients. I'd tell them it will probably slip through the cracks. I'm not here to pass judgment on my client." Bayer would take the opportunity to tell any senior citizens, however, never to let anyone else use their credit.
The other problem with bankruptcy, in my opinion, is that $40,000 is on the low end of being worth filing for bankruptcy over, especially with four people who can contribute to the cause. That's only $10,000 for each of you. When you consider the costs of bankruptcy, along with the chance that the bankruptcy trustee could sue the rest of you, bankruptcy becomes much less attractive.
You, your sisters, and your mom need to seek credit counseling as soon as possible. A counselor from a good, nonprofit agency can help you see what your options are and untangle the financial mess you are all in together. They can also help you stop the creditors from calling, which should lower your everyone's stress level immediately.
No matter the good intentions when you all started sharing Mom's credit card, it took four of you to get into debt. It's going to take all four of you, working together, to get out. You can do it. Good luck to you and your siblings on finding jobs, and I wish all of you the best.
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