Often two people have debts together – husband and wife, parent and child, even siblings and friends can share debts. Having joint debts can be difficult to deal with when one person – or both people – can no longer afford to keep up the payments on the debt. If you’re considering debt settlement and you have joint debts, you must include the other person in the process.
Settlements Affect Both People’s Credit
Anytime you share a debt with someone else, your payments and non-payments are reflected on the other person’s credit report. When you stop making payments on joint debt, the other person’s credit will likely suffer too. You should warn them that this is going to happen and see if they can pick up payments on the debt if necessary.
When you fall behind on payments, creditors will likely come after both people for payment on the debts. This means not only will you get phone calls and letters about the debt, the cosigner will get phone calls and letters too. The same collection tactics creditors can use on you, they can also use on the cosigner. That may even mean a lawsuit or garnished wages.
If you successfully settle the account, the settlement note should go on both people’s credit reports even if you were the one to pay the settlement. The cosigners credit will possibly be hurt by that status even if they’re up to date on all their other payments.
Could Be Harder to Settle
When you approach a creditor about settling a joint debt, you can count on them asking whether the other cosigner can afford to pay the debt. So both people should approach the settlement company with a settlement offer and convince the creditor that neither of you can afford to pay that debt. Since creditors have access to both credit reports, you could have a hard time making the creditor believe the cosigner can’t afford to pay the debt if he or she has kept up with all their other payments.
If you leave the account out of your settlement, most likely other creditors will ask how you’re able to keep up payments on the joint account, but not your other accounts. They may even pressure you to ask the cosigner to help you pay off your own debts. You could just tell them that the cosigner is handling the other debt and is unable to help you make regular monthly payments on your own debts.
Settlements Could Backfire on the Cosigner
You may be able to on your own get the creditor to agree to a settlement, but unless the cosigner also signs the agreement, the cosigner could be on the hook for the rest of the balance. The creditor will probably go after the cosigner for the remaining balance.
Authorized Users
Authorized users on an account typically don’t have any financial responsibility for paying the account. They typically just have permission to make charges on the account. So, if you settle an account that has such an authorized user, the creditor can’t go after the authorized user for payment. You can keep the authorized user’s credit report from being tarnished by the settlement by removing him or her from the account before you settle it. That way, the settlement goes on your account, but not the authorized user’s account. Authorized user accounts are different from joint accounts, since joint account holders are bound by contract to pay for the charges if the other person doesn’t pay.
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