In my previous post, I discussed how joint debts can make two individuals liable, even when only one enjoyed the benefits of the loan. In this post, I will discuss when joint debts can (and cannot) be eliminated through Chapter 7 bankruptcy and Chapter 13 bankruptcy.
The easiest way to dispose of joint debts in a bankruptcy is to file a joint bankruptcy. Joint bankruptcies allow two debtors to file at the same time with one petition, adding convenience and reducing costs. Joint bankruptcy is only allowed, however, with legally married couples. Boyfriend-girlfriend, bother-sister, parent-child, BFF-BFF... none of these can file a joint bankruptcy. Only a legally married couple can file (NOTE: recent case law and practice allows this to include same-sex couples). Engaged doesn't count, you need to be married at the time of filing.
So, if you are a married couple, with joint marital debts, you can file a bankruptcy to discharge these joint debts in one filing. If this is an option, the process will be pretty simple and it is a great, efficient way to deal with your financial problems.
Where things get murky is when only one co-debtor wants to file bankruptcy, or only one co-debtor is able to file. If you have a co-signed loan on which you are liable, and you file an individual bankruptcy, your personal obligation on that debt will be discharged and eliminated. However, your co-signer will become completely liable on the loan. The debt is only wiped out as it relates to you, it is not completely eliminated. The creditor can still pursue your co-debtor.
This will sometimes lead to a situation where a non-filing parent or spouse is left on the hook with the debt. If they are unable or unwilling to file their own individual bankruptcy, this debt will lead to collections and lawsuits. In these cases, after your discharge you can voluntarily help pay back your joint debtor, though you are under no legal obligation to do so. It is up to you.
There is one scenario where a joint debt may NOT be dischargeable in bankruptcy when you file on your own. If you have agreed to assume a joint marital debt (or any marital debt) as part of a formal property settlement agreement in a divorce, you cannot eliminate this debt in a Chapter 7 bankruptcy. This marital debt can only be eliminated in a Chapter 13 bankruptcy (which may require you to repay some money to your creditors). This policy of bankruptcy law protects divorced spouses who have negotiated in a divorce from being made liable on joint debts they rightfully negotiated away as part of the settlement.
This one example aside, if you file bankruptcy on a joint debt, your obligation will be cleared away. You can also be on the other side of this scenario... if someone you share a joint debt with files without you, YOU will become wholly liable. This is important to understand, us you may in turn need to file a bankruptcy.
If you are dealing with joint debts, contact us to set up a free consultation to see if bankruptcy is an option for eliminating the debt.