Who’s Responsible to Pay Joint Credit Cards After Separation or Divorce

Posted in Personal Bankruptcy
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

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I was recently asked this question:

“I took over a joint credit card after my wife and I separated and only I have charged items to the card since the separation. I have now cancelled that credit card. Does this mean my ex-spouse will not be responsible for the balance on the card if I go bankrupt?”

There are two factors to consider here:

  • what does joint and severally liable mean when it comes to joint credit cards, and
  • can joint debts be removed by virtue of a separation or divorce agreement.

Jointly & severally liable

If the credit card is a joint credit card, both spouses will likely be considered ‘jointly & severally’ liable for all debts. Determining whether or not a card is joint or supplementary depends on the terms and conditions of the credit card itself.  However assuming that in this case the card is considered a joint credit credit, then both spouses will be liable for the full amount of the debt, including any interest that accrues after the card is cancelled. Cancelling a credit card does not cancel the outstanding debt to either party.

Using credit cards after a separation

The second issue surrounds how debt is treated in a separation or divorce.  As the joint card had remained in both names after the separation, the credit card company has the right to look to the ex-spouse to cover the balance if the current user of the card filed for bankruptcy. Just like cancelling a card does not eliminate the liability of the joint card holders, neither does a divorce or separation agreement, formal or otherwise, limit the liability of any spouse from the lender’s perspective. You might agree you will be responsible for the card, but without the credit card company’s express written consent, both joint cardholders will remain liable for past and future debts on the joint card.

A request can be made to the credit card company to remove the name of a joint cardholder or co-signor, but if there is a large unpaid balance, as in this case, it is unlikely they will agree. Sometimes the credit card company will do this if proof can be shown that only one person has charged items to the card since the card was first used and has the capacity to pay the balance. The original terms and conditions of the cardholder agreement can also come into play.

Cancel cards upon separation, not after

It is better to cancel all joint credit cards upon separation and open new credit cards in just single names. That way the balance on the old card can be paid jointly or covered in the separation negotiations and the new cards will be in the individual names and the responsibility of the charging party only. It’s important to remember as we noted above, that even if the separation agreement requires one party to pay off the balance, the credit card company will still pursue the joint cardholder if they fail to make payments unless the credit card company specifically agreed to have the second cardholder’s name removed from the card.

Understanding how joint debt is treated in a bankruptcy and separation situation can be complicated. Talk with one of our licensed insolvency trustees before you file to ensure that the solution you choose will work for both you and your ex-spouse.

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