Will bankruptcy affect an authorized user?

To Her Credit columnist 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 CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

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Question for the CreditCards.com expert

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

Answer for the CreditCards.com expert

Dear 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 balance.

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.

It's important that you and your husband find someone who can look at your finances with you, come up with options, and help you decide on the best course of action. I recommend finding a nonprofit agency affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

However you decide to resolve your debt, I hope you and your husband are able to get your careers back on track soon, if you haven't done so already, and that things are looking up soon.

See related: You're eligible for Chapter 7 bankruptcy, but should you file?, Is bankruptcy right for you? Our 7-point checklist

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Updated: 12-15-2018