Vernon Hills bankruptcy lawyer answers the question, if I file for bankruptcy, will be creditor look to collect from my co-debtor?Creditors have an opportunity to collect from anyone who is signing and obligating to pay on that debt. Let’s take the example of a joint credit card. Let’s call it an American Express card in which husband and wife or husband and co-debtor both signed to be responsible parties for that credit card. If one party decides to file for bankruptcy relief, the creditor has the ability to seek and collect from the co-debtor. Just filing bankruptcy does not eliminate that debt to both parties. The real issue is who is filing Chapter 7 bankruptcy. If one party is filing for bankruptcy, then the debt is eliminated as to that one party only. If both parties are filing bankruptcy, then the debt is eliminated as to both parties.
This co-debtor equation comes up often in the case of a cosigned a vehicle where a couple or a relationship has gone estranged and the parties are no longer living together and no longer both utilizing the vehicle. What winds up happening is somebody who had the vehicle gives the vehicle back to the lender. They wind up filing for bankruptcy so they are not responsible for any auto repossession deficiency.
However, unbeknownst to the co-debtor, they get a phone call or a letter from the finance company attempting to collect on the debt. That person then says well, I don’t have the car, my ex has the car or my ex-wife has the car. Try to collect from him or her. Well, once that person is aware that there is a bankruptcy claim, the creditor lets them know that the only one that they can collect from is the non-filing co-debtor. In that scenario, the finance company has every right to collect against the co-debtor.
Word to the wise is that you should never cosign a debt for someone. Even married couple should not cosigned debts because many relationships wind up in divorce. It’s much better to finance a vehicle on your own or take out a rental apartment on your own without having to involve a significant other, a friend or a family member. There is nothing worse than trying to explain to your coworker, family member or ex-spouse that they are now responsible exclusively for the debt to the finance company because one party has decided to file for individual bankruptcy protection.
You can never get into that situation unless you cosign for someone. It is best to remain exclusively responsible for your own debts. If you need a cosigner, that’s a sign that maybe you do not have the ability to pay the debt on your own. The lender is looking for a cosigner because they want some assurance that if you can’t make the payment, they can turn to someone else and collect the payment. So be aware that if you cosign a debt for somebody, you are on the hook for that debt despite the fact that the party might file bankruptcy and eliminate the debt as to them. The finance company is going to contact you in an effort to collect the debt and you may be forced to file bankruptcy yourself.
You also might wind up having a judgment against you which will affect your credit. The judgment can then be collected upon through either a wage garnishment or a bank citation. Judgments also accrue interest at approximately 5% to 9% per year. So an unpaid debt where there’s in the judgment will continue to increase until such time that it is paid. For answers to further bankruptcy questions, seek the advice of a local bankruptcy lawyer.