Co-Debtor: Understand Their Role in Your Bankruptcy
March 25, 2008
When an individual files for bankruptcy they may have obtained a loan with a friend, spouse or family member. By doing this, they are on the loan together and enjoy the same benefits of the loan if timely paid as well as the same liabilities if the loan is defaulted.In Bankruptcy, if an individual is on a loan with another person that has not filed bankruptcy; the non-filing person obtains the same benefits of the protection of the bankruptcy case as the individual that did file from that particular creditor.
After someone files for bankruptcy the protection from creditors is automatically put into place. This protection prevents any creditors from collecting or taking any action to secure their interest on a loan against the bankruptcy filer.
At the same time, this protection is extended to a non-bankruptcy filer as well. This is a very generous benefit that a co-signor has even when they have not filed for bankruptcy. However, this benefit is not as far reaching as it may seem.
When a person files for bankruptcy they are generally trying to either reorganize their debts by making a monthly payment under Chapter 13 to keep a house or car, or they are seeking a completed discharge of their debts subject to the liquidation of their assets under Chapter 7.
In either case, if the individual that filed for bankruptcy cosigned a loan with another party that has not filed for bankruptcy, both will be protected from any collection efforts. However, if the individual that filed for bankruptcy decides to return the item back to the creditor or defaults on the loan while in bankruptcy that the non-filer cosigned a loan for, then the non-filer is no longer protected and the creditor can start making collection attempts against the non-filer.
Unfortunately, the non-filer will be on the hook unless he or she files a bankruptcy themselves, whereas the filing party receives the benefit of a complete discharge of the debt if they defaulted on the loan.
The co-debtor stay is most common for people who are married and only one spouse files for bankruptcy. In Texas, it is a community property estate; therefore, it is also a community debt state. Meaning, that a couple that incurs debt together during the marriage, regardless if the debt is only in the name of one spouse, the creditor may look to both of them for the debt because the presumption is they both received the use and enjoyment of the item or items purchased.
If one spouse files for bankruptcy and the other does not, the non-filing spouse will be protected from all creditors as long as the bankruptcy case continues. However, any debts that a creditor can prove are community debts remain against the non-filing spouse after the case is concluded. Therefore, it is almost always advisable, if married, to file a joint bankruptcy case.
The underlying principal is that the law in bankruptcy is set up to protect individuals and their property from any collection activities, even those individuals that did not file but are a co-signor or guarantor of a loan that is in bankruptcy.
However, the protection is only available for a period of time until the creditor decides to file a motion in the bankruptcy court or until the bankruptcy case is completed.
I Want Out! What Happens When Your Bankruptcy Case is Dismissed
March 25, 2008
Filing a bankruptcy case is the last thing most people ever consider or even want to do. However, there are times when it is the last chance that people may have to get financial relief from their creditors, save their car, or save their home. Once an individual files a bankruptcy case, they may find that the process is more grueling than anticipated or circumstances arise that may cause them to have a change of heart. Therefore, this may lead people to want out of their bankruptcy cases. However, getting into a bankruptcy is a lot easier than getting out.
When you file a bankruptcy case it automatically is reported to the credit bureaus and may remain on your credit report for a period of ten (10) years. Like a foreclosure or car repossession, this can have a damaging effect financially if you try to secure a loan or get financing. Therefore, it is important when you file a bankruptcy case that you are prepared to see it through and get the relief that is available. But, what happens if you can’t continue any further in the bankruptcy and the case either gets dismissed or you opt to have it voluntarily dismissed?
In many instances, a bankruptcy case is not voluntarily dismissed by the individual that filed the case. Many times, as in a Chapter 13 case, the case is either dismissed for failure to make payments to the Chapter 13 Trustee to reorganize debt or for not filing or providing the necessary paperwork needed to comply with the case. In a Chapter 7 case, cases rarely, if ever, get dismissed, and only do so when an individual has completely disregarded filing their documents or attending the mandatory Meeting of Creditors. If a case is dismissed under these circumstances, an individual has the ability to re-file their bankruptcy case to get the protection that they needed, but with limitations. One such limitation is when an individual fails to provide a reasonable explanation for failing to comply with the requirements, and then the individual is barred from re-filing a case for at least 180 days or six (6) months.
There are times though when an individual wants their case voluntarily dismissed. Many times this is because the individual cannot get the relief through the bankruptcy that they could if they were outside of a bankruptcy filing. An example of this is if someone is trying to work out an arrangement with their mortgage company or car creditor and the lender will not help them while they are in a bankruptcy case. Therefore, the individual opts out of the bankruptcy case by filing a Motion to Voluntarily Dismiss case. If an individual is in a Chapter 13 case and they file the above motion, they can look to re-file a case within the six (6) month time period as long as they show the need to be out of the present bankruptcy case. This may allow someone to both get their affairs resolved with the lender outside of the bankruptcy case and then re-file in the immediate future to receive protection from their other creditors they originally were protected from.
However, it becomes an issue when an individual wants their case dismissed solely to protect assets that may be administered through their bankruptcy, such as equity in a second home, a lawsuit settlement, lottery winnings, or an inheritance. If an individual tries to file a Motion to Voluntarily Dismiss their case in this type of circumstance, more than likely, the Trustee assigned to their case will almost always object to the Motion filed if the creditors have not already, because the individual is putting their creditors at risk of non-payment. An example of this is when a client receives an inheritance and opts to have the case dismissed because he knows a majority of the inheritance cannot be protected while in bankruptcy and would be subject to having to be paid to his creditors scheduled in the case. If an objection is filed, the individual will have an opportunity to explain why being outside of the bankruptcy will be in his or her best interest, at the same time, why his or her creditors will not be harmed by having the case dismissed. If the individual is successful in his or her Motion, then the case will be dismissed, but the individual will be barred from re-filing a bankruptcy case for at least six (6) months.
Although people do not file bankruptcies with the intent to have their case dismissed, things can arise during bankruptcy cases that are unforeseen. However, the law is not only set up to protect the individual that is filing the bankruptcy, but also the creditors subject to the bankruptcy filing. Therefore, it is always important to understand the circumstances of every action while in a case to be better prepared for the unknown.
