How Bankruptcy Affects Joint Accounts
You may be considering bankruptcy but have joint accounts with someone else and wonder what the ramifications may be. Will the other person be affected? What happens to that joint account under bankruptcy law?
Bankruptcy can be a complicated affair. There are many types of accounts as well as two main types of users — authorized users and joint account holders.
An authorized user is someone who is able to use your credit card but cannot change the account in any way. They are also not financially obligated to make payments. A joint account holder shares the responsibility with you on the account. They can make changes to the account and are on the hook for paying the bill if you don’t.
What Happens if an Authorized User or Joint Account Holder Goes Bankrupt?
An authorized user is not financially responsible for an account, so if you own the account, your credit report will not be damaged if they declare bankruptcy. However, if your joint account holder files, the credit account would need to be included in the bankruptcy.
If your joint cardholder decides to declare bankruptcy, you have a couple of options before they file:
- Call your issuer. Call your credit card issuer and ask if your joint account holder can be removed from the credit card agreement. This will allow you to keep your account, and your credit will not be affected at all.
- Close the account. If you do not have a balance on the joint account, you can just close it. Keep in mind that closing accounts can temporarily lower your credit score, but it’s not as bad as bankruptcy.
How a Bankruptcy Can Affect You if You are Not the Filer
If you have a joint bank account, the funds may be used to pay creditors. Banks may temporarily freeze joint accounts during the bankruptcy process, particularly if they are alerted to the filing. This means the joint account holder would not be able to use the account.
A bankruptcy could also have implications for the person who is not filing for bankruptcy. Bankruptcy affects only the credit score of the person filing. However, if joint debts are unpaid due to bankruptcy, it could negatively affect the credit score of the other account holder.
The effects will also vary based on the type of bankruptcy:
- Chapter 7 bankruptcy. If you file for Chapter 7 bankruptcy, your liability for joint debts may be discharged, but your co-account holder remains responsible for the full debt. Creditors can pursue them for payment. The account could be frozen or closed, especially if it is a credit account, to prevent further use.
- Chapter 13 bankruptcy. Chapter 13 may provide some protection for your co-account holder through the co-debtor stay. This prevents creditors from pursuing the co-account holder during the repayment plan. Another benefit is that the repayment plan may include payments toward joint debts, helping reduce the financial burden on the co-account holder.
Joint accounts are treated differently depending on the type of bankruptcy. Make sure you understand the rules that apply. In Maryland, the Law Offices of Adam M. Freiman can help you start a brighter financial future. Get rid of your debt for good.
