Odds slim when suing authorized user for unpaid debt


To Her Credit
To Her Credit, Sally Herigstad
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, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs. See her website for more personal finance tips and free budgeting worksheets.
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Dear To Her Credit,
Five years ago I lost contact with a "used to be" friend of mine, who I had added as an authorized user to my credit card. He racked up some debt and hasn't paid in these five years. I'd like to make him pay, but I was reading about a "statute of limitation" on debt. Is it true that if I sue him, he can invoke a time-barred defense?  -- Jolene


Dear Jolene,
I'm afraid your chances of winning a lawsuit collecting past credit card charges from an old friend are quite weak.

It's important to consider what kind of contract you had with your friend. has an exhaustive list of the statutes of limitations for credit card debt, but that's not what you want. You're on the hook with the card issuer, not your used-to-be friend: It agreed to loan money to you, not to him. If you are trying to force the ex-friend to pay, the courts would want to look at the type of contract that existed between the two of you.

The best-case scenario would be that he signed a note with you, promising to pay you back. If he said he would pay you back, you still have a contract with him, albeit an oral verbal one. If you handed him a card and assumed he would pay for his charges, you may not have had a contract with him at all. You could have a difficult time proving that letting him use your card was not a gift to him.

There are different statutes of limitations, depending on the type of contract in force. you are looking for the statute of limitations is different in some states, depending on the type of contract. For example, in New Mexico, the statute of limitations with a written contract is six years. With an oral contract in New Mexico, the statute of limitations is only four years, however, in which case you'd be past the time limit. provides a  list of states' statutes of limitations written and oral contracts. Be aware that other factors may affect your actual time limit. According to, time limits for suing to recover a bad debt are often shorter than time limits on other types of contracts.

Another factor you should consider before suing is when the clock on the statute of limitations really started. Check with your state laws for details. The statute of limitations may have started when he made the purchases or the last time he made a payment to you -- if he ever did. If you have any emails or other communication showing that he acknowledged the debt or promised to repay it since then, the statute of limitations may have started over when they were sent.

For example, if you live in Texas, the statute of limitation on both oral and written contracts is four years. He ran up these bill five years ago. If you could find an email from three years ago in which he acknowledged that he owed you the money, you may be able to show that the statute of limitations restarted at that time.

The courts are not your only avenue. Most people want to do the right thing, but as time goes by, good intentions can crumble. They may be embarrassed. They may "forget" how much they spent or say they thought it was a gift. I've heard the excuse that whatever they bought is gone or no longer works (as if that's your problem!). And then there's the excuse that they don't have any money, regardless of evidence to the contrary.

It doesn't hurt to ask your friend to pay. Send documentation of his charges if possible. Bad memories usually work in favor of whoever is doing the remembering. You may want to mention why you need the money now. Offer to take something other than money in exchange for the debt, if feasible, such as collectibles or a motorcycle. It's better to get something than nothing!

If all else fails, and the debt was substantial, perhaps you can at least take a tax deduction for the bad debt. You can only take a tax deduction for the year the debt became worthless -- generally when you try unsuccessfully to collect, when the borrower files for bankruptcy or when the statute of limitations expires on a contract. If you determine that this debt became worthless in a prior year, you can file an amended return to take a nonbusiness bad debt deduction.

To take a bad debt deduction, you'll need to gather all the documentation you can about the amount your friend owes you. You must have had an understanding, written or oral, that you were to be repaid to take a bad debt deduction. Otherwise, the Internal Revenue Service considers it to be a gift. You'll enter bad debts with sales and dispositions of capital assets on IRS Form 8949. Your bad debt amount first reduces any capital gains on your return, and then reduces up to $3,000 of other income, such as wages. If you cannot take the full deduction in the year of the loss, you can carry it forward to later years.

See related: How low can an authorized user go? 

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Published: September 19, 2014

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