Sharing a roof with a parent doesn't mean sharing their bankruptcy
Dear Credit Score Report,
My
81-year-old mother is planning on filing for bankruptcy, as she is no longer
able to make the minimum payments on her credit cards. Since we live at the
same address, is there any chance her bankruptcy will affect my credit? I have
requested a "second card" on my account in her name to cover her
expenses. Will this come back to bite me? -- Sherry
Hey Sherry,
Sharing both an address and a credit card with your mother doesn't
mean you'll both feel the impact of her bankruptcy, experts say.
Bankruptcies are among the three types of public records
(along with civil judgments and tax liens) that can appear on a consumer's
credit report. Although you live under the same roof, you and your mother each have
your own individual credit histories, with her financial problems likely only
appearing on her credit report. A mother's "filing bankruptcy has nothing
to do with the daughter who is living at the same address," says Carmen
Deluttri, a consumer attorney practitioner with the Dellutri Law Group in Fort
Myers, Fla. Therefore, unless you co-signed on a joint credit card account, her bankruptcy shouldn't impact your credit.
In your situation, it sounds like your mother is simply an
authorized user on your account. So although your credit should be fine, your mother can expect some fallout. Once she declares bankruptcy and the court reports it to the credit bureaus, that bankruptcy will be listed on her credit report. Additionally, any of her accounts specifically covered by that liquidation will have their report status updated to show "included in bankruptcy," credit bureau Experian says. That means your mother needs to consider what
accounts she lists on her bankruptcy filing.
As you and your mother most likely realize, bankruptcy
seriously damages a borrower's credit. Data unveiled by FICO in 2009 showed the credit score impact of common borrowing mistakes and problems. Among those errors,
bankruptcy was the most damaging, lowering a borrower's FICO score by up to 240
points. Once a cardholder's FICO score
takes such a plunge, he or she can expect any future borrowing to become significantly
more costly and difficult.
Still, as I noted earlier, your credit score doesn't have to
drop even if your mother's FICO falls: Continue to make all your bill payments
on time and in full, if at all possible, and take on new debt only when
necessary. You'll also want to be sure that any charges your mother puts on
that second credit card get repaid. If she does run into trouble, having her
listed on the account as an authorized user -- rather than opening a joint account -- means she can be removed from that card at any time. Otherwise,
"if the mother and adult child have any joint credit, there will be an
impact," on both of your credit, says Equifax spokesman Tim Klein.
In addition to avoiding your own mistakes, you'll need to be
on the lookout for other mix-ups that may occur along the way. Deluttri
recommends requesting a copy of your credit report sometime before your mother's bankruptcy filing and then again three or four months after she declares bankruptcy. Scanning those reports will enable you to catch any
mistakes that could erroneously appear and unfairly damage your credit score. If
the shared card "account were to be shown inadvertently as included in
bankruptcy on the child's credit report, he or she can dispute it and Experian
will remove it," says Rod Griffin, the bureau's director of public
education. By also looking over your reports from the other two major credit
bureaus, Equifax and TransUnion, both before and after the bankruptcy, you can also
dispute any errors in those reports.
By continuing to consider the close links between your
personal finances, you're sure to make future decisions that will positively
impact both you and your mother's lives.
Good luck.
-- Jeremy
See related: Consider these options before co-signing for a card, Cardholders' mistakes can bring down authorized users' credit score, FICO reveals how common credit mistakes affect scores, Free credit reports: How to get the actual free one, Decade-old credit mistakes shouldn't appear on your report
Jeremy M. Simon is a former CreditCards.com reporter who wrote about credit scoring, economic data, credit card crime and other issues. He is based in Austin, Texas. He is a graduate of Vassar College and has previously worked for Thomson Financial in New York City, where he wrote about the stock markets, and Texas Monthly, as well as several publications in Austin.
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Published: March 2, 2010
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