Oftentimes prospective clients have a number of different types of debts to discuss at a consultation. In some cases a debtor has a debt with another person. This could be because the debtor has a co-signer or is a co-signer. This could also be a debt like a mortgage that was held by two people equally. What happens to that debt depends on the circumstances. If a debtor has any situation where there are joint debts he/she should speak with an attorney as rights to property and certain responsibilities regarding property are payment may be affected for both the debtor and the co-debtor.
If a debtor is filing a Chapter 7 case and wishes to discharge an unsecured debt, such as a credit card, or surrender a secured debt, such as vehicle, he/she may certainly do so. However, if there is anyone else listed on the debt the co-debtor’s responsibility is not discharged. It is imperative to understand that filing for bankruptcy only impacts the filing party’s responsibility on the debt. For example, if Person A has a vehicle that Person B is a co-signer for, and Person A surrenders the vehicle in the bankruptcy, Person B is still legally responsible for the debt. Person B could file for bankruptcy and discharge his own legal responsibility to repay the debt. It is for this reason that most often married persons are encouraged to file a joint petition. Discharging one spouse’s obligation to pay the debt does not substantially alter the household’s obligation to repay the debt. However, if married individuals do not have joint debt they may not need to file together.
If a debtor is the co-debtor on another debt, for example debtor has co-signed on a vehicle for his brother, the debtor must still list this property and this debt. The debtor may explain on their schedules that the vehicle is actually the property of his brother and that his brother makes all the payments, but it must be listed as the debtor would have in interest in the property. Most often, in cases like this, the debtor would simply surrender his interest. This does not affect the contract between the debtor’s brother and the lender, it would simply eliminate debtor’s obligation as a co-signer.
There are a number of complex legal issues and circumstances that affect co-debtors when filing for bankruptcy. If you have questions, or would like to set up a free consultation, contact a St. Louis Bankruptcy Attorney Today.