Blog Layout

Book a Strategy Session

Sign up to receive our Top Estate Planning Tips!

Sign Up to Receive Our Top Estate Planning Tips!

TESTIMONIALS

– Elizabeth, a business client

–Charles Kirk

– Katherine, an estate planning client

Co-Signers and Bankruptcy

Apr 01, 2016

Bankruptcy can be an opportunity for a clean slate. However this opportunity could come at a disadvantage to those you love if you do not properly take into account the liability of others as Co-signers or under Community Property.

What is a Co-borrower vs. a Co-signer?

A co-borrower is someone who usually has equal value in an asset as well as having equal responsibility for a debt. Whereas a co-signer is someone who is not on a title, or otherwise controls the asset but is still agreeing to bear equal responsibility for a debt. In bankruptcy both co-borrower and co-signers are called ‘co-debtors’.

When a debtor files for chapter 7 bankruptcy, any co-debtor on an account that is included in the bankruptcy will be responsible for the debt. This is because debt collectors and credit card companies can no longer collect against a debtor who has filed for bankruptcy.

On the other hand, if you file a chapter 13 bankruptcy your co-debtor will be protected by the bankruptcy automatic stay as long as the chapter 13 repayment plan is active. If a debtor fails to make their required chapter 13 monthly payments, then the co-debtor will once again be liable for the debt along with the bankruptcy filer should the case be dismissed.  At the end of their chapter 13 bankruptcy plan the co-signer would be liable for paying the remaining balance of the debt not paid during the plan.

What does community property have to do with this?

Washington State is a community property state, and as such anything gained by one spouse while married is also equally the spouses, this includes both assets and debts. If either spouse took out a loan, made a charge on a credit card, etc. to support the household during the marriage, the one who didn’t take out the loan is almost automatically treated as a co-signer. If one spouse files a Washington State bankruptcy petition and the other does not, the one who doesn’t file bankruptcy may have to pay the debt anyway because they have acquired the liability for the debt by virtue of the debt being community property.

If you have questions or concerns about Bankruptcy and co-debtors, call Limitless Law PLLC at (360) 685-0145 or use the “Ask an Attorney” link on our website to contact us today!

The post Co-Signers and Bankruptcy appeared first on Limitless Law PLLC.

Share by: