Shared card leads to collection mess after a bankruptcy
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Dear Opening Credits,
I gave my 18-year-old girl a Wal-Mart Discover card her first year at her university to use for emergencies. She had no income and was my dependent and used it a few times. I lost my job and am filing Chapter 7 bankruptcy. A collection agency sent my daughter a threatening letter and are asking her to pay the balance of $3,600 or they will ruin her and her new husband's credit history. Can they do this? -- Robert
A creditor, be it the original credit card issuer such as Wal-Mart or the collection agency Wal-Mart sold the debt to, can demand a balance due. And they have the right to pursue anyone who is legally tied to the account.
It isn't clear from your question whether your daughter was just an authorized user on the card account or a joint account owner with you. If she was just an authorized user (meaning you added her as a guest to the card, but you are the primary account owner), then she is not liable for any debt on the card. All you have to do is call the issuer and have her authorized user status revoked. She can then tell the collectors that she is no longer on the card and was just an authorized user and, therefore, not responsible for repayment. The damage to her credit should be minimal once she is removed as an authorized user on the card, since the negative payment history associated with the card should drop off her credit reports.
However, if you owned the card jointly with your daughter, she's on the hook for the balance, even if you include it in your Chapter 7 bankruptcy. The debt still exists; it's just passed in full to the other owner whether it was your daughter who charged with the card or you. Therefore, the collection agency that purchased the account can call and write your daughter with the news that she needs to pay up or else.
Or else what, though? Credit damage and a potential lawsuit, essentially. What they can't do is add the account to her husband's -- or anyone else's -- credit report. Getting married does not mean you take on your new spouse's old debts! Assets and liabilities that were amassed before the marriage are and remain the personal property of the individual. So not only can't the collector start reporting the bad debt to your son-in-law's credit report, it can't even talk to him about the debt without her permission.
So let's concentrate on your daughter. Evidence of the account -- from when it was in positive standing to when the balance was incurred and didn't get paid -- is on her consumer credit reports. If she were to pull her reports now, she'd see everything about the account, including when it was issued, the balance, the late payments, the date Wal-Mart charged it off and which collection agency currently has it.
Without question, her credit rating has been damaged, and the proof is in her credit scores. If she were to check her FICO scores, those numbers might be a lot lower than what she'd want, as payment history is the most important factor. And if all she has is this debt, with no other positive credit history, then my guess is her scores are in the dumps.
As for the collection agency, it can contact your daughter and demand a payment. A lawsuit may follow if she doesn't pay. The balance you cite is substantial enough for this to be a genuine danger. If she is taken to court and the collection agency wins a judgment, the end amount will probably be much larger as court costs and other fees will be added. The judgment will then be listed on her credit report in the public records section, and the judgment creditor (the collection agency) may be given the option to garnish her wages or claim property until the debt is deleted.
Will such actions affect her and your son-in-law? I would think so. Although he's not legally bound to the debt, as a couple working toward common life goals, this type of problem would affect their budget, savings and financial dealings. For example, they may want to buy a house together. If both incomes are necessary to qualify for the mortgage, both credit reports would also be assessed. A debt like this can prevent a bank from offering a low-interest loan.
I know this is sounding dire, but there is something you can do to help. In a Chapter 7 bankruptcy, you have the choice to reaffirm the debt, and not discharge this particular account. By walking away from other debts, you might have enough cash left over to pay this one off. It won't erase the past, but it will boost her credit rating.
Or, even if you do include the account in the bankruptcy, you can still satisfy the debt for her. I can't tell if she's the one who made all, some or none of the charges, but if you were responsible for them, do the right thing and do what it takes to eliminate this obligation now. She's a young woman with her whole life ahead of her. Don't stick your daughter and her husband with all the damage.
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