What happens to cosigners?

Quite often, especially on car loans, a debtor will have a cosigner on a loan they want to discharge in bankruptcy. Generally, your bankruptcy will not remove the liability that your cosigner has on these debts.

Creditor calls and collections.

The automatic stay will prevent creditors from continuing to contact and collect from you. But it will only stop those actions against your cosigner if you are filing under Chapter 13. This is called the codebtor stay.

Discharge of the debt.

After a Chapter 7 is filed, creditors will usually begin collection actions right away against the codebtor. Your bankruptcy discharge will remove all liablity you have with the creditor on the cosigned debt. In a Chapter 13, even though the cosigner cannot be contacted by the creditor during your case, they will generally be contacted by the creditor once your Chapter 13 case is completed and you are discharged from the debt.

Divorce decrees and division of debt.

The Bankruptcy Code identifies several types of debt that are nondishargeable. In 2005 this list was expanded to include domestic support orders such as divorce decrees that divide up shared debt. For example, if you and your ex-spouse shared an American Express account and your decree ordered you to pay it because he or she was ordered to pay some other debt, you may be unable to include Amex in your bankruptcy.

If you file bankruptcy and include the Amex account, your ex will receive notice of the case. He or she will then have the right to file an objection to discharge and get your obligation on the Amex removed from the list of other debts that would be discharged. Even if you were never on the Amex account, but you had been ordered to pay it, you may still be barred from discharge.

The key to discharging shared marital debt is to file your bankruptcy before a divorce decree is final or there is any domestic court order regarding the division of debt.

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