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 Stewart 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,
I am the primary cardholder on a credit card I've had for 10
years. My husband of six years was put on this account as a secondary cardholder
about three years ago.
I'm considering filing for bankruptcy. My husband and I both
lost our jobs in the past two years, and we're deep in debt. He already filed
for bankruptcy about seven years ago, shortly before we got married. We don't
live in a community property state.
Can I file for bankruptcy on my own since I'm the primary cardholder?
Will he acquire all of the debt?
Also, the credit card shows on his credit report as a zero
balance. What does that mean? Any advice is greatly appreciated. Thank you! -- Natalie
By "secondary cardholder," I am assuming you mean
you added your husband as an authorized user. If he were a joint cardholder, the
current balance of the card should show on his credit report, not a zero
If you called the bank and asked for a card for him, but he
never applied for credit and signed an agreement, in a non-community property
state he is not liable for the debt. David P. Leibowitz, founder of LakeLaw.com and co-chair of the
American Bankruptcy Institute Consumer Bankruptcy Committee, says, "being
a cardholder does not make him liable. He never agreed to pay the debt; she
agreed to pay the debt."
That doesn't mean he can keep charging up expenses. "He
should never use that card again," says Leibowitz. "He should get his
own card, and after seven years (since his bankruptcy), he probably would be
able to get one."
The next question is whether one or both of you should file
for bankruptcy as a solution to your debt problem. Bankruptcy is a serious
step, as you know. Leibowitz says, "Bankruptcy is the atomic bomb of debt
resolution. You have to use it sparingly."
The best way to decide if you should file for bankruptcy is
to determine if you can realistically make good on the debt. "When your
debt is approaching and exceeding your annual income, your chances of paying
them back become very remote," says Leibowitz. "The interest is
accruing faster than you can pay it down."
Of course, Chapter 7 bankruptcy is not the only way to go.
According to Leibowitz, about 35 percent of bankruptcies filed in the U.S. are Chapter 13. Because your husband filed seven years ago for a Chapter 7
bankruptcy, he cannot file for Chapter 7 again for another year. However, both
of you are eligible now to file for Chapter 13, a form of bankruptcy in which
you get relief from creditors and you pay back all or most of your debt over
the next three to five years.
Chapter 13 bankruptcy has several advantages, aside from the
fact that your husband is eligible to file for it but not Chapter 7. Unlike
"straight" bankruptcies, which require you to surrender assets to pay
debts, under Chapter 13 you generally keep assets, such as real estate, and
keep making your payments. Chapter 13 is also less damaging to your credit
report than Chapter 7, and it's preferable to doing nothing and possibly facing
repossessions, lawsuits and the like. If both of you have significant debt --
which seems likely when you've both been unemployed -- you may be better off
going that route.
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