For joint account holders and co-signers…we’re in this thing 50/50, right? This question is usually asked by someone who is getting a divorce and is wondering what to do about his or her “joint” debt with someone they now only speak with through their attorneys.
First, what is a joint user? A joint user is responsible for the debt. Whether it is a loan or credit card, credit information from both was used to qualify. If the account is a credit card, both can use the card and are responsible for payment. If the account is a loan, both are responsible for payment. Anyway you cut it…you’re both liable for the debt and the payments. You should have thought about then when you signed all of that paperwork.
Joint accounts
A joint account is reported on both individual’s credit reports. This is where issues arise resulting from the divorce decree that states who is responsible for paying the debt. If the responsible party does not pay on time or at all, that is reflected on the other party’s credit report as well. In addition, creditors can come after both parties for payments and collections. Even if the divorce settlement stated who was responsible for the debt, this doesn’t apply to the original agreement with the creditors, which listed both as responsible for the debt. The creditor was not a party to the divorce settlement.
Credit card accounts
If your joint account is a credit card, it is best to close the account, so that no more charges can be made on the account. If there is a balance, the card issuer holds both parties responsible for payment, not half for each. At this point, you have to work out arrangements with the card issuer to pay off the card. If you settle for less than the amount owed, this will be reflected negatively on your credit report. This is considered “not” paid as agreed. If you want a credit card from the same issuer, you will have to apply for a new card and quality for it based on your individual credit and income.
Loans
The problem is more complex if a loan (auto or home) is involved. The responsible party should refinance the loan, but they may not be able to because they have poor credit or negative equity on their car or home. If both names are on the loan, both are still responsible for the debt.
You may think that you are only responsible for half of the debt because both agreed to pay the debt. That isn’t reality. That is why I discourage any type of joint account. You are responsible for transactions made by the other party, which you may not be aware of.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. You can follow John on Twitter here