What Happens to Joint Debts in a Massachusetts Bankruptcy Case?
When you file for bankruptcy in Massachusetts, it’s essential to understand how joint debts are handled. Joint debts are those that you share with another person, such as a spouse, family member, or business partner. These can include mortgages, car loans, credit card debts, and more.
The type of bankruptcy you file is what determines the way these debts are treated. In Chapter 7 bankruptcy, also known as liquidation bankruptcy, the debtor’s non-exempt assets are sold to repay creditors. However, if a debt is co-signed, the co-signer becomes responsible for the entire debt if the primary debtor cannot pay. This means that even if you file for bankruptcy, the co-signer could still be on the hook for the debt.
On the other hand, in a Chapter 13 bankruptcy, also known as a wage earner’s plan, the debtor proposes a plan to repay all or part of the debts over three to five years. If you have co-signed debts, this type of bankruptcy can provide some protection to the co-signer during the repayment period.
Can I Protect a Co-signer in My Bankruptcy Case?
Yes, there are ways to protect a co-signer in a bankruptcy case. One way is by reaffirming the debt. Reaffirmation is a legal process in which you agree to continue paying a debt as if you had not filed for bankruptcy. This can help protect a co-signer from being pursued by the creditor.
Another way is through a Chapter 13 bankruptcy. As mentioned earlier, the automatic stay provision in Chapter 13 bankruptcy can protect co-signers during the repayment period.
However, this protection only lasts as long as the bankruptcy case. Once the case is over, if there’s still a balance on the debt, the co-signer could be responsible for it.
What if My Co-signer Files for Bankruptcy?
If your co-signer files for bankruptcy, it could impact you depending on the type of bankruptcy they file. If they file for Chapter 7 bankruptcy, the co-signer’s responsibility for the debt is eliminated, and the creditor could then come after you for the full amount of the debt.
However, if the co-signer files for Chapter 13 bankruptcy, the automatic stay provision could protect you from being pursued by the creditor during the bankruptcy case. If there’s still a balance on the debt after the case is over, you might be held responsible for it.
What Happens to Joint Debts if Both Co-signers File for Bankruptcy?
If both co-signers file for bankruptcy, the situation can become more complicated. The outcome usually depends on the type of bankruptcy each co-signer files and the timing of the filings.
For instance, if both co-signers file for Chapter 7 bankruptcy, the debt is typically discharged for both parties. This means that the creditor cannot pursue either party for the debt. However, if one co-signer files for Chapter 7 and the other files for Chapter 13, the creditor may still pursue the Chapter 13 filer for the debt during their repayment period.
Can I Discharge a Co-signed Debt in Bankruptcy?
In most cases, yes, you can discharge a co-signed debt in bankruptcy. However, it’s important to remember that discharging a debt in bankruptcy only eliminates your obligation to pay the debt. It does not eliminate the co-signer’s obligation to pay.
If you file for Chapter 7 bankruptcy, you can discharge your responsibility for the co-signed debt, but the creditor can still pursue the co-signer for the full amount of the debt. If you file for Chapter 13 bankruptcy, you might be able to discharge a portion of the co-signed debt at the end of your repayment period, but the co-signer could still be responsible for any remaining balance.
Can Filing for Bankruptcy Affect My Spouse?
If you’re married and considering filing for bankruptcy, you might be wondering how it will affect your spouse. In Massachusetts, one spouse can file for bankruptcy without the other. However, your bankruptcy filing could still impact your spouse, especially if you have joint debts.
If you file for bankruptcy and discharge your responsibility for a joint debt, your spouse could become responsible for the full amount of the debt. Additionally, your bankruptcy filing could potentially affect your spouse’s credit if you have joint debts or joint accounts.
Can I File for Bankruptcy to Protect My Assets?
Filing for bankruptcy can provide some protection for your assets. In a Chapter 7 bankruptcy, certain assets are exempt, meaning they are protected from being sold to repay creditors. In Massachusetts, you can choose to use either the state exemptions or the federal exemptions.
Exempt assets can include things like your home, car, personal belongings, and retirement accounts. However, non-exempt assets can be sold to repay your debts.
In a Chapter 13 bankruptcy, you can keep all of your assets, but you must repay your debts over a three to five-year period based on a court-approved repayment plan.
How Can a Lawyer Help with Co-signed or Joint Debts in Bankruptcy?
Navigating co-signed or joint debts in bankruptcy can be complex. An experienced bankruptcy attorney can help protect your interests. They can explain the implications of bankruptcy, help you understand the different types, and guide you through your options and the bankruptcy process.
A lawyer can also help you develop a strategy to protect a co-signer. They can advise you on whether reaffirming a debt or filing for Chapter 13 bankruptcy would be in your best interest. They can also help you understand the potential consequences if your co-signer files for bankruptcy.
In addition, a lawyer can represent you in court and in negotiations with creditors. They can help ensure that your rights are protected and that you get the best possible outcome in your bankruptcy case.
If you’re dealing with co-signed or joint debts in a bankruptcy case, call Benner Law at (774) 404-8321 for a free case evaluation!
