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CosignerandbankruptcyWhen a debtor decides to file bankruptcy, what happens to co-signers and joint accounts after filing for bankruptcy? Debtors may have co-signed for debts or be named on joint bank accounts with relatives or kids. At your initial consultation your bankruptcy attorney will inform you of how these situation may affect you or others with whom you share joint debts or accounts with.

When an individual files for bankruptcy they must list all of their debts and all of their assets on their bankruptcy petition with the help of their attorney if they have one. This includes all bank accounts in which a debtor is named as a joint account holder, even if the funds in the account do no belong to somebody else. If you are on title to an asset or have access to funds in an account it will be considered an asset of your bankruptcy estate. If the debtor can prove that they are on the accounts in name only and have made no withdrawals or deposits into the account to commingle their funds with somebody else’s, then there may a good chance to prove the funds are not part of the bankruptcy estate and a bankruptcy trustee may not seek to obtain the funds in that account for the benefit of their creditors. Being able to show a clear paper trail is very important in these situations. With that said, it never hurts to use left over bankruptcy exemptions on such accounts if you have them available to make certain no funds will be seized. Bankruptcy exemptions are rules used to protect a debtors assets.  In Washington State a debtor may choose Washington state bankruptcy exemptions or federal bankruptcy exemptions.  If a debtor does not own a home in Washington state, they will most likely choose the federal bankruptcy exemptions as there will be more protection for other assets such as vehicles or bank accounts through the wild car exemption , currently worth $13,900 and doubled for a joint filing.

Another popular question of debtors is what will happen to a debtors co-signers post bankruptcy filing. If a debtor is a co-signer on a joint account and that debt is discharged in the chapter 7 or chapter 13 bankruptcy, then the other co-signer would be solely liable for such debt and no recourse could be taken against the person who filed for bankruptcy as the debt would be subject to the bankruptcy discharge. If the debt is a non dischargeable debt such as a student loan, both parties would remain liable for the debt post bankruptcy filing. Therefore if you have co-signed on a debt with somebody else you might want to put such individuals on notice of your bankruptcy filing so that any affected parties can make arrangements accordingly.  For instance if the co-signer is making payments on an auto loan that they would like to retain, they can then make the proper arrangements.  For secured debts tied to property, you can also sign a reaffirmation agreement in order to continue to be liable for a debt post bankruptcy filing.  A reaffirmation agreement is an agreement that is sent to you or your attorney and outlines terms of the loan and includes your affirmation that you do have the ability to repay the debt.  Sometimes it is possible to negotiate a better interest rate or loan terms in exchange for reaffirming a loan.  With that said in most cases, i would advise not signing a reaffirmation agreement if you can continue to make payments on the loan post bankruptcy filing while retaining the asset.  The reason signing a reaffirmation agreement may not be in your best interest is that you can keep the asset without being liable for the debt on it and if something comes up where you can’t make the payments or you have a car accident and need to surrender the car you can do so without being responsible for the balance of the debt.

It may also be possible for co-signers to be removed from a student loan by refinancing the loan or talking with a lender to see what would need to be provided in order to remove a a co-signer.  If there are any marital debts remaining post bankruptcy filing in which you had responsible for paying to an ex-spouse, keep in mind that your ex spouse may still be able to enforce their rights in the family court if the debts were not discharged or you had responsibility to pay on debts per a divorce decree.  If that is the case you should discuss with your bankruptcy attorney whether a chapter 13 bankruptcy would make sense to discharge any liability on marital debts that are not child support or maintenance to your ex-spouse.

If you have additional questions about what happens to Co-Signers and joint accounts after filing for bankruptcy, please schedule a consultation with a bankruptcy lawyer or call Symmes Law Group at 206-682-7975 to learn about your options.

  • Richard Symmes

    Hi, Richard here.

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