Your adult son or daughter is having cash flow trouble and they are having a hard time getting refinancing or credit on their own right now. After some discussion and much thought, as parents trying to help out, you offer to let them use one of your credit cards with those low rate offers (borrowers get these in the mail who have good credit) to get them back on track. This is mistake number one.
Of course, they promise they will make all the payments, and they have a good job, so you have the statements mailed to their house so they can mail the money directly to the credit card company. Mistake number two.
They know it is in your name, and you know they would never let this get out of hand to hurt your credit without letting you know right away. Mistake number three.
You don't really see the statements anymore, so you have no idea the balance is now maxed out the $15,000 line of credit when you had agreed they would only use what 'they absolutely needed, around $5,000 or so?. Mistake number four.
You haven't seen the monthly statements to see the missed and late payments, extra over limit fees and late charges. You never were told about the notices about the terms on the account changing in the statement inserts, so you don't know the nice low rate you had has now jumped to 26.99%. Mistake number 5.
Every month it is being reported on your credit report as at least 30 days past due and your credit score is dropping like a rock and you have no idea. Mistake number six.
Your kids are too embarrassed to say anything to you face to face, but they see an attorney and decide to file bankruptcy to get rid of all the creditors and to stop all the garnishments and collection calls you are unaware of. You find out when someone sees it in the paper, or mentions they got stiffed for $1,000 and asks you about it. Mistake number seven.
The bankruptcy is well underway already. Your $15,000 is not includable. It is not their debt; it is all yours, in your name, incurred with your permission, and the monthly payments are about $533 a month, including over limit and late fees. $397 of the payment is only fees and interest charges! Even after the bankruptcy, they can't afford to make the minimum payments anyway.
What went wrong? Several things, first parents are not loan officers. Creditors are not ?mean?, or ?don't like us? when they refuse to lend money, they have a valid reason, or reasons we cannot handle, or do not qualify for more credit. One warning sign would be if a bank or credit union can't figure out a way to help reorganize the debt, and they have access to the credit reports, all available collateral, wages, etc. then you probably will not help the situation by throwing more credit at it in your name. It may be best to offer to pay for some credit counseling instead and be a part of it.
If taking on second jobs for a while, downsizing possessions and other hard financial choices cannot avoid bankruptcy as the only alternative, then at least no more money is wasted on a losing cause?your money that is!
Never allow the credit card, charges put on the card or monthly statements out of your hands! If you have no direct control over the continued use of the card, and what is or is not happening with the payments, changes in interest rates and over limit and extra late fees, your wallet and credit report are in jeopardy needlessly.
You can make a photocopy of a statement quick and easy just about anywhere. You can remit the monthly checks from your own account and have the kids pay you directly. If they can't come up with the money for the monthly payment, you do. And, you pay on time even if it hurts your budget.
If it is already too late for you, in the event the kids file bankruptcy, you are stuck with the bill. You really have three choices here after you get angry about the whole mess. Pay it off out of your resources in lump sum, make monthly payments until the balance has been paid in full or seek debt reorganizing help for yourself to determine what is your best solution for resolving the balance with as low of a cost as possible. Remember, this debt and its repayment history, or lack of it, will affect your ability to borrow for a car you may need in six months, the new house you were planning on purchasing next year or anything else financial related as long as it is outstanding, so plan your own finances accordingly.
The hardest part for most will be to get over it as gracefully as possible. Forgive them for their stupidity in handling money, and your role in making it worse even though you had the best of intentions. Consider it a gift, never to be repaid and tell them so if you can afford to do so. Then resolve to not bring it up again and move on. No one has to bring it up again to know the situation existed and it cost you all dearly.
Pay for credit counseling for the kids anyway. Bankruptcy alone will not solve the money handling issues that clearly exist. The odds are good if you file bankruptcy once; you will do it again in the future having learned little about handling money the first time around if changes are not made.
Update your will to include spendthrift provisions and trusts as needed with your attorney. Update all life insurance beneficiary and IRA beneficiary designations that may go to these same children in the future with spendthrift provisions that coordinate with your will provisions with your agent or investment professional. Otherwise, watch a lifetime of savings evaporate in a matter of months with nothing but tax bills to show for it.
If any of the above mistakes are in place now and you have helped your children with a credit card in your name only, change it today. In this situation, what you don't know truly can hurt you, and so does what you won't do to protect your financial interests.
Announce to all children, ?The Bank of Mom and Dad? has been closed permanently, and stick to it.
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