Managing Debt

Will Filing Bankruptcy Hurt My Children’s Credit?

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Filing bankruptcy can get confusing if you have shared debts. One Credit.com reader wrote in recently with this concern:

I am considering filing bankruptcy but am hesitant because I am on a few accounts with my children. I am not the primary cardholder with a Discover card, but am on my daughter’s card, and am on a Chase account with my son. Both of these accounts are in good standing and have excellent payment history. Will either of these be affected if I file for my own personal debts that are only in my name?

Whether or not filing bankruptcy will impact your children really depends on whether or not you include the cards in bankruptcy and how your children are listed on the accounts.

If you file bankruptcy and include the cards, it will definitely affect any primary or joint account holders listed on the card, regardless of how impeccable the cards have been managed to date. This is one of the major drawbacks of joint and co-signed accounts, and the reason why we suggest consumers weight their options very seriously before co-signing or applying jointly for friends or family members. If one person defaults, both will pay the price as far as your credit is concerned. Filing bankruptcy will release you from the liability on the cards, but if your children are joint or primary cardholders, they will still be held liable for the debts.

On the other hand, if your children are listed as authorized users, any damage caused by bankruptcy can be avoided. If this is the case, as the primary accountholder you can call and have them removed as authorized users and the bankruptcy won’t impact them at all.

For the Discover card, you mention that you’re not the primary cardholder so the same holds true — if you’re a joint accountholder, it will hurt both parties on the account. However, if you’re an authorized user, you’re not legally liable for the debt so you wouldn’t be able to include the account in bankruptcy anyway.

If you’re considering bankruptcy, I’d urge you to consult with a bankruptcy attorney. In some cases, even though you may not want to include certain credit card accounts in the bankruptcy filing, you may not have that option. A bankruptcy attorney would be able examine your individual financial situation and advise you accordingly.

Image: iStockphoto

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