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Chicago Bankruptcy Question: What happens to authorized users in a Chapter 13 bankruptcy?

Chicago Bankruptcy Question of the Day: What happens to authorized users in a Chapter 13 bankruptcy?  An authorized user is a person who is expressly permitted to use a credit card or line of credit, but who is not actually personally liable on the debt.  This is very common for younger people who are authorized users on a credit card in their parents' name and spouses who are authorized users on their respective spouse's credit card.  How these are treated within a Chapter 13 depends on which party is filing for bankruptcy protection.

When you file for Chapter 13 bankruptcy protection in the Chicago area, all debts that the filer is personally liable on must be scheduled within the bankruptcy petition and treated under the plan of reorganization.  If you have a debt on which you are liable, but which an authorized user actually incurred, then this debt must be included within the Chapter 13 plan and treated like all other creditors in that class of creditor.  Unfortunately, this means that you may end up paying back some or all of the other parties debt. You can seek a contribution from the person who actually incurred the debt, but this would have to be included as income on your budget.

If you were the authorized user and are the person filing the Chapter 13 bankruptcy, then the debt cannot be included within your plan of reorganization because you are not personally liable on the debt.  You may be able to include within your budget an expense item to maintain payments on this debt outside of the bankruptcy in order to protect the party who is actually liable on the debt.  Normally the Chapter 13 trustee will not object to this so long as the payment is reasonable, usually meaning that you can only make the minimum payments until the Chapter 13 is discharged.  If the debt will be paid off during the life of the Chapter 13 plan, then the trustee will usually seek an increase in your plan payment at that time by the amount scheduled to pay that debt.

If you have a debt where you either are an authorized user on someone elses account or where someone is an authorized user on your account and are considering filing for Chapter 13 bankruptcy protection, it is essential that you have an experienced Chicago bankruptcy attorney representing you.  A good bankruptcy lawyer will be able to explain your options regarding these debts, recommend an appropriate course of action and draft your petition and plan to ensure that your goals are achieved.  The experienced Chapter 13 attorneys at Ledford & Wu are always willing to offer a free consultation to discuss your options and prepare a plan that will work for your situation.

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