Co-Debtors: What it means in a Bankruptcy

Filing for bankruptcy can be a difficult decision for anyone. There can be many complicated aspects of the bankruptcy process, and filers may find that this is especially true when there is more than one person associated with a debt.

It’s common knowledge that a debt can be held by more than one person. Debts are often shared when people co-sign for loans, or when they are joint users of credit cards. This happens most frequently between married couples, but other family members and sometimes even close friends may be co-signers. 

What happens to co-debtors in bankruptcy? 

When one person chooses to co-sign with another, he or she is agreeing to take part in the debt and to be responsible for it. In a bankruptcy, a co-signer becomes a co-debtor, and this can cause some tricky situations.

In a Chapter 13 bankruptcy, both debtor and co-debtor receive an automatic stay; in a Chapter 7 bankruptcy, only the person filing may be granted a discharge of the debt. The co-signer, aka co-debtor, will be held responsible for that debt unless he or she too files for bankruptcy. When the co-debtors in question are a married couple, it’s a fairly simple solution (filing joint bankruptcy), but other relatives and friends who are co-debtors may not have as many options.

If the filer is a co-signer on a loan, he or she will need to list that as debt in the bankruptcy inventory, even if someone else is technically the owner and makes payments on the loan. The filer can surrender his or her interest in a separate process if necessary.

Finding Legal Help

With all the complications involved in bankruptcy, it’s important to have good legal guidance and representation. If you are filing for bankruptcy — or you find yourself in a situation in which you are a co-signer on a loan for someone filing for bankruptcy and are unsure how that person’s bankruptcy might affect you — contact an attorney for help navigating bankruptcy law.