You may have passed the means test and are ready to proceed with your Chapter 7 Bankruptcy, but have you thought about your co-signer or your spouse? Bankruptcy affects those around you in ways you wouldn’t anticipate. If you file Straight Bankruptcy, or Chapter 7 Bankruptcy, and your spouse fails to file as well, your spouse may still be liable for all debts owed to creditors. If you are divorced, and the debt was incurred during the marriage, your ex-spouse may still be held liable as well. Further, under Chapter 7 Bankruptcy, Co-Debtors (Co-Signers / Guarantors) are liable for all debts owed to a specific creditor.
However, under Chapter 13 Bankruptcy, a co-debtor may receive an automatic stay, if the debt was incurred for a domestic (e.g. household) purpose. If the debt is related to business, the co-debtor is not protected and may be held liable for the debt. Still, filing for Chapter 13 Bankruptcy does not relieve the co-debtor of debt obliged to the creditor. The stay is a mechanism for protecting the co-debtor from collection actions while your Chapter 13 Bankruptcy is pending. And so long as you meet your debt payments under Chapter 13 Bankruptcy; your co-debtor should remain unharmed.
This blog post is by no means a comprehensive interpretation of co-debtor obligations. Should you have any questions regarding your bankruptcy proceedings, consult your Dallas TX Bankruptcy Attorneys at DEMARCO•MITCHELL, PLLC. Our Dallas TX bankruptcy lawyers will provide the personal attention your legal needs require. Contact us online, or call (972) 578-1400.