Clients frequently ask about what happens to their co-debtors in a bankruptcy. Fortunately, debtors and co-debtors benefit from the automatic stay in bankruptcy. There are a few considerations regarding co-debtors discussed below.
Co-Debtors And Obligations On The Debt
When you file bankruptcy, you are addressing your individual indebtedness. If you have a co-debtor on a debt (someone you co-signed with on an account or loan), they will still be on the hook for the debt. The easiest way to think of this is that prior to filing bankruptcy you are both responsible for 100% of the debt. After you file bankruptcy, your co-debtor is still responsible for 100% of the debt. Your responsibility on the debt has been discharged at the completion of the bankruptcy.
The Automatic Stay
The automatic stay prohibits any attempt to collect a debt or civil action against the debtor and the co-debtor, so long as it is in effect. This means the co-debtor benefits from the automatic stay even though they are not filing a bankruptcy. In these cases, the co-debtor automatic stay only applies to consumer debts, not business debts.
With regard to both the debtor and the co-debtor in a landlord-tenant situation, the landlord can move forward with eviction even if the debtor has filed a bankruptcy, IF the landlord obtained a judgment for possession prior to the filing of the bankruptcy petition.
If you have questions about bankruptcy, debt, or creditors, please feel free to call me at 704.749.7747. I’m here to help.