Any individual, including your spouse that signed for or took out a loan with you is considered a co-debtor. Co-debtors include parents or others who co-sign for a car or apartment for you but does not include “authorized users” on your credit cards. Typically the best way to determine if someone will be considered a co-debtor when you file bankruptcy is to determine whether or not they have agreed to be responsible for making payments on your loan(s), or they have agreed to pay the loan if you do not. If so, then they are a co-debtor.
Are Authorized Users Co-Debtors?
Individuals you list on your credit cards as “authorized users” are not co-debtors. Authorized users are typically entitled to use your credit cards but are not obligated to make payments on your credit cards or to repay the amounts charged on your credit cards. Even if you have credit cards issued in the name of an authorized user, unless they have signed the credit application as a borrower, they are not co-debtors.
Do I Have To List Co-Debtors In My Bankruptcy?
Yes you are required to list any and all of your co-debtors on Schedule H of your bankruptcy petition. In addition to listing co-debtors on obligations such as your mortgage or personal loans, you should also list co-signers on obligations such as automobiles, student loans or apartment leases. You must include their name, address, the creditor to whom you owe the debt and the schedule on which the debt appears. You may have to list the same individual more than once if they are a co-debtor on more than one of your debts.
Chapter 7 Automatic Stay versus Chapter 13 Automatic Stay
Whether you file a Chapter 7 or a Chapter 13 as soon as you file your petition with the court you will be granted what is known as an “automatic stay.” An automatic stay prohibits any of your creditors from taking any action to collect or enforce any debts owed to them by you, unless those debts are excluded from the automatic stay. Typically, debts that are excluded are non-dischargeable debts in a Chapter 7 bankruptcy like court fines, alimony and child support obligations. The automatic stay remains in effect until your bankruptcy case is closed, dismissed or you are granted or denied a discharge. An automatic stay does not prohibit your creditors from contacting or attempting to collect the debt from any of your co-debtors. This is different in a Chapter 13 bankruptcy, however, as the Bankruptcy Code specifically provides a “co-debtor stay” for consumer debts after a Chapter 13 bankruptcy case is filed.
How Will My Bankruptcy Affect My Co-Signers’ Credit?
When you file bankruptcy, your co-signers will remain responsible for paying the debt that they co-signed for that is discharged in your bankruptcy. As long as they continue to pay the debt, your bankruptcy will not affect their credit. On the other hand, if they fail or refuse to pay the debt, doing so can negatively affect their credit and may subject them to collection or enforcement actions by the creditor. If you do not want a co-signer of yours to have to pay a debt you are entitled to discharge in bankruptcy then you must “reaffirm” the debt by entering into a reaffirmation agreement with the creditor as part of your bankruptcy. A reaffirmation agreement obligates you to continue paying the debt even after you receive a discharge. Since this is a serious commitment and will affect your fresh start, it is rarely a good idea to reaffirm a debt solely to protect a co-signer. Even if you do intend to reaffirm a debt that another person co-signed for, they may still be contacted by the creditor to make payments while your bankruptcy is pending and the automatic stay is in effect.
Does My Discharge Also Protect My Co-Debtors?
No. Your bankruptcy discharge does not protect any of your co-debtors. Unless you live in a community property state and the co-debtor is your spouse, your discharge only relieves you of the obligation to pay the debt. In a community property state, it relieves you and your spouse’s community property (most importantly, their wages) even if your spouse did not file bankruptcy with you. All other co-debtors are still legally obligated to pay any debt that is discharged in your bankruptcy.