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What to Do When Co-Signing for a Relative Goes Terribly Wrong

Unfortunately, this happens all too often. A family member will ask to use another family member’s personal credit in order to open a business credit card. They explain that this will help build his or her creditworthiness and get their business off the ground. Before the unsuspecting individual realizes it, that family member racks up a lot of debt and refuses (or is unable) to pay the bill.

Does this sound familiar? While your family member may have a moral responsibility to pay, your creditors view the situation a little differently. In their eyes, if you signed a contract saying that you would, you are the individual they expect to pay the charges.

What Led You to This Sticky Situation

The present situation you find yourself in could have happened in several ways:

  • Primary cardholder – This means you took the card out yourself as primary cardholder and made your family member an authorized user. The only way you have a chance at recovering the money in court in this situation is if you have a written contract stating that the family member agrees to pay the charges on the card.
  • Joint account – If you and your family member both signed as joint applicants, you are dealing with a joint account; this means you both have equal access and equal control over the account.
  • Co-signed – Unfortunately, if you co-signed for the card, this means you have shared responsibility for the debt. This is true even though you typically do not have a physical card or the ability to make charges. You are still in a tough situation because you do have some authority over the account.
  • Guarantor – If you agreed to be guarantor, the situation is a little different. While this is similar to being a co-signer, it differs in that the bank will come after you as a last resort – after it has exhausted all other means to collect.
  • “Joint and several liability” – Only some small-business cards will offer this option. It means the signer shares responsibility with the business, and is responsible for that business’ debts. With “joint and several liability” the issuer is actually allowed the option of going after the signer personally.

How to Recover and Rebuild Your Future

So where does all of this leave you? What about the business plans you had in place for yourself? If a similar situation has damaged your personal credit, you will be glad to hear that you still have options. High risk providers – like First American Merchant – are more than willing to offer services to those rebuilding their credit score. Consider FAM’s credit card applications instant approval offer. Don’t let a kind gesture gone wrong keep your own business plans from moving forward.

In the words of journalist, Elaine Pofeldt, “Sacrificing your own personal finances to help such a family member inevitably backfires and potentially ruins both your finances and your relationship…Donate your time or provide other sorts of services if you truly want to help. It’ll be better for both of you in the long run.”