If the Primary Cardholder Files for Bankruptcy, Is the Authorized User Responsible for the Debt?

Written by James Hirby and Fact Checked by The Law Dictionary Staff  

Generally speaking, the authorized user is not responsible to pay the credit card balance if the primary card holder files bankruptcy. In order to understand this question, a few issues need to be addressed.

The Difference Between a Co-signer and an Authorized User

When two people apply for credit at the same time and both sign the agreement to pay the debt, then both account holders are responsible to pay the debt. The credit card application will allow applicants to choose who the primary card holder is and who the secondary card holder is. In this case, if the primary card holder files bankruptcy, the lender can legally pursue payment from the secondary card holder.

However, if a primary card holder later authorizes someone else to use the credit card, the authorized user is not legally required to pay the debt. The credit card company cannot pursue payment from the authorized user. The authorized user generally does not sign the credit card agreement. Since the authorized user has not agreed to pay, they are not required to pay.

What Happens When a Primary Card Holder Files Bankruptcy?

In a perfect world, the credit of an authorized user will not be affected when a primary card holder files bankruptcy nor can the credit card company hold the authorized user responsible for the debt. However, some credit card companies will report bankruptcies on an authorized user's credit. Clearly, this will cause credit problems for the authorized user. If this happens, authorized users need to speak with the credit card company to have this removed from their credit report.

Under the Equal Credit Opportunity Act established in 1974, federal law gives credit card companies permission to report the bankruptcy on the authorized user's credit history. Not every credit card company takes advantage of this right.

The best way to avoid being legally responsible for the primary card holder's debt is to read the credit card's agreement before becoming an authorized user. A simple call to the issuing bank is another way to clarify your responsibility for the debt before becoming an authorized user.

What to do if the Primary Cardholder Files Bankruptcy

Instead of trying to wade through this issue yourself, contact an attorney who specializes in bankruptcy. Most of these attorneys are familiar with credit card agreements. As a result, they can work to protect the credit of the authorized user.

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