Understanding Authorized Users and Consumer Bankruptcy
Many credit cards give consumers the option of adding an “authorized user” to the card. There are many benefits to this option, both for the credit account holder and for the authorized user. However, having an authorized user on your account or being an authorized user on an account can get complicated if either the authorized user or the account holder decides to file for personal bankruptcy. We want to say more about authorized users and consumer bankruptcy.
What is an “Authorized User”?
Being named as an authorized user allows you to build or rebuild your credit if the account holder is in good standing on the credit card. In other words, the authorized user can have access to the same credit line as the account holder, and the authorized user’s credit score will reflect access to the account and how payments are made on the account. For someone who is trying to rebuild credit after bankruptcy, becoming an authorized user can be extremely helpful.
However, as an article in NerdWallet clarifies, the authorized user cannot make changes to a credit account. At the same time, the authorized user is not obligated legally to make payments on the credit account. That obligation is tied to the account holder. At the same time, it is important to understand that an authorized user is distinct from a joint account holder. If two people apply for credit and are joint account holders, both are legally obligated to pay the balance on the account and to make timely payments.
Adding an Authorized User with a History of Bankruptcy
If a family member recently filed for Chapter 7 bankruptcy and is now trying to rebuild his or her credit, you may be wondering if it will affect your credit to add that person as an authorized user on a credit card account. In short, as the article emphasizes, an authorized user’s history of bankruptcy will not impact your own credit score or credit report in any way. That person’s financial history will not have any bearing on the primary account holder’s credit profile.
However, if the authorized user makes charges that she or he does not pay off—and that the primary account holder does not cover—those actions could affect the primary account holder’s credit. At the same time, only the authorized user’s actions with regard to the account on which she or he is an authorized user can impact the primary account holder.
What Happens When an Authorized User or Primary Account Holder Files for Bankruptcy?
If an authorized user files for bankruptcy, the primary account holder typically will not be impacted. As the article clarifies, “because your authorized user isn’t financially responsible for charges to the account, your credit report won’t be damaged if he or she declares bankruptcy.” Yet a joint account holder is different. If a joint account holder files for bankruptcy, the credit account on which you are a joint account holder typically will be included in the bankruptcy case.
If a primary account holder files for bankruptcy, the authorized user’s credit can be harmed significantly. As such, if you are thinking about becoming an authorized user on another person’s account, it is important to think carefully about that primary account holder’s credit score and financial standing, and how it could affect you.
Contact an Oak Park Bankruptcy Lawyer
If you have questions about filing for bankruptcy or want to know more about how bankruptcy can impact your accounts, an Oak Park bankruptcy attorney can help you. Contact the Emerson Law Firm for more information.
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