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Chapter 13 and Cosigned Debt

Chapter 13 and Cosigned Debt

Co-debtor protection under Chapter 13 Bankruptcy

Consider the following scenario in relation to Chapter 13 and Cosigned Debt:

John and Jane are married. John has debt in his name alone but Jane does not have debt in her name alone, except for a joint credit card debt (joint with John). John is considering filing for bankruptcy, but Jane does not want to file since she does not have any debt other than the joint credit card debt. How can John protect Jane (a non-filing spouse)? John can pay the joint credit card debt in his Chapter 13 plan protecting Jane from that creditor.

If a debt is cosigned with someone else and only one person is filing for bankruptcy, then the person who has not filed for bankruptcy can be sued by that creditor (once they get Bankruptcy Court’s permission). This makes sense since, typically, only the person filing for bankruptcy gets protected against his or her creditors. Chapter 13 bankruptcy enables a filer to protect a cosigner that is not filing. Co-debtors don’t have to be married for this provision to apply. Sometimes it makes sense to utilize this provision and sometimes a joint filing makes better sense. Consider this other scenario:

John and Jane are married. John has 40k in credit card debt in his name and Jane also has 40k in credit card in her name. John and Jane both also have a 20k in joint credit card debt. If only John files and protects Jane by paying the 20k in joint debt in his bankruptcy, Jane is still left with 40k in debt. John is also paying 20k of their joint debt. In this scenario, it may make more sense to file jointly. Of course several other factors such as the ones listed below should also be considered.

  1. Whether or not the couple is in process of separation
  2. What the monthly payments will be if a joint case is filed
  3. The amount of the cosigned debt

The key point is that a non-filing co-debtor can be protected in a Chapter 13 case. In some cases with Chapter 13 and Cosigned Debt it may make sense to structure a Chapter 13 plan utilizing this provision but it may also make sense not to use this provision. If you have joint debt and are considering filing for bankruptcy, I suggest consulting a bankruptcy attorney. Typically, you can get the information you are looking for in your free consultation.

If you live in the Metro Atlanta area or North Georgia, contact us for a free consultation.