Many individuals considering filing for bankruptcy have debts held with another person. This may be a spouse, significant other, or simply a co-signer. There are a number of potential questions and issues that may arise when there is joint debt. Though certainly not an exhaustive list, it is an overview of the types of issues that may arise.
The most important concept to note is that filing for bankruptcy only addresses the filing individual’s obligation to pay the debt. Meaning, that in a Chapter 7, if a debt is discharged it is only discharged for the filing individual. The non-filing co-debtor’s financial obligation is not impacted or altered in any way by the bankruptcy.
Practically speaking, if co-debtors are married they may want to strongly consider filing a joint bankruptcy case. If a husband and wife have a joint debt and only husband files wife is still responsible for the debt. If most or the debts are joint debts there would be very little incentive for only one spouse to file. If co-debtors are not married, but both want to eliminate the debt they may want each consider filing for bankruptcy. This situation could arise in a number of contexts. For example, if person A cosigns on a car loan for person B and person B decides to file bankruptcy the lender can attempt to collect the money from person A. Person A may want to consider bankruptcy.
On the other hand, if the co-debtor wants to keep paying on the debt or keep the item, such as a vehicle, he or she may do so. For example, if person A and person B purchase a vehicle and person A filed for bankruptcy, person B’s relationship with the creditor is not affected and person B may continue to make the payments on the vehicle.
If an individual is facing a foreclosure and considering a Chapter 13 Bankruptcy to stop the foreclosure, one person filing for bankruptcy is sufficient to halt the foreclosure. It is unimportant whether co-debtors are married in this situation. If one person on the mortgage files for bankruptcy it will stop the proceedings and the arrears can be paid through the plan.
Co-debtor concerns, like many bankruptcy issues, can be difficult to navigate on your own. If you have specific questions about this, or would like to schedule a free consultation, contact a St. Louis Bankruptcy Attorney Today!