Why does joint debt matter?

One item of information we need about each of your debts is whether anyone else signed for or is otherwise responsible for a debt. This information needs to be disclosed in the bankruptcy petition. As a matter of bankruptcy planning, a determination must be made about what is likely to happen to the co-obligor once you file, and whether such is a cause for concern to the debtor. Joint debt with a spouse is important if the debtor owns real property, as joint debts can potentially impede protection of a family home via tenancy by the entirety.

The bankruptcy of a debtor does not remove the co-obligor or co-signer's obligation to repay. Potentially, if the co-signer functioned as a guarantor, it leaves the co-signer who never expected to pay the debt being the sole party responsible for a debt. If a debtor is particularly concerned about the co-obligor on a debt, chapter 13 offers added benefits worth considering. A co-debtor stay is imposed in chapter 13 which stops a creditor from attempting to collect the debt from the co-obligor, giving the debtor an opportunity to resolve the debt via his or her chapter 13 plan. A plan may employ classification of claims to treat the co-signed debt differently from other debts, often in order to pay the debt in full and protect the co-signer from any collection activity.

If you have any doubt whether a particular debt is joint or not, please discuss the debt with our bankruptcy attorney.