Article by Georgette Miller, Attorney
HOW WILL BANKRUPTCY AFFECT JOINT ACCOUNTS AND COSIGNERS?
Filing for bankruptcy is a difficult decision, but there are cases where it is the only option to get out from under debt that may be causing stress, fear and even health problems. In most cases, only the person who files bankruptcy is affected by the process, but when you have a loan or credit card that is jointly held by another person or one where someone co-signed for you, they will be affected by the bankruptcy as well.
JOINT ACCOUNTS AND COSIGNERS
There is a difference between a joint account and one on which there is a cosigner. A joint account is owned by two or more people with each person on the account being equally responsible for the payments on the loan. A cosigner is often used when someone applies for credit and the bank is concerned that the initial borrower will be unable to pay. In some cases, a loan may have what is known as a guarantor on an account rather than a cosigner.
The only difference between a cosigner and a guarantor is that the creditor must attempt collection from the primary borrower before attempting to collect from the guarantor. However, the bank can begin attempting to collect from a cosigner at any time. In bankruptcy, however, there is no distinction between a guarantor or a cosigner.
BANKRUPTCY EFFECT ON JOINT ACCOUNTS AND COSIGNERS
The effect bankruptcy has on your joint account owners and cosigners depends on the type of bankruptcy filed. A Chapter 7 bankruptcy eliminates your need to pay debts that are discharged and provides you with an automatic stay regarding collections. However, the stay does not apply to your cosigners or joint account owners. Creditors may begin collection proceedings against them even while you are going through the bankruptcy process.
Chapter 13 bankruptcy provides more protections for your cosigners and joint account owners as you are able to pay those debts through a repayment plan. Chapter 13 bankruptcy automatically provides cosigners and joint account owners with a stay, although a creditor can ask the stay to be lifted if the cosigner received consideration for the claim, you are not proposing to pay off the debt under your repayment plan or the creditor will suffer irreparable harm.
PROTECTING YOUR COSIGNER OR JOINT ACCOUNT OWNER
Even under Chapter 7 bankruptcy, there are ways to protect your cosigner or joint account owner. You may reaffirm the debt, which means you are giving up the right to discharge the debt and are again accepting liability to pay the obligation. You may also pay the debt after your bankruptcy in order to keep the creditor from collecting from your cosigner. You can also ask the cosigner to pay the debt until you are able to begin paying again after your bankruptcy is discharged.
Filing for bankruptcy is often the only option for those who find themselves in significant debt. Before choosing to file for bankruptcy, especially if you have cosigners or joint accounts, it is important to discuss your situation with an attorney. Contact us today! Fill out our contact form to see if bankruptcy is right for you and how you can protect others if you should choose to file.