Chapter 7 bankruptcy erases an individual’s personal liability for most debts. However, this relief does not eliminate the obligation for joint account holders. Creditors can still collect from non-filing co-signers in these situations. What happens to the debt and any related property depends on who is responsible for the debt, whether it is secured and how the property is owned.
How Chapter 7 treats shared liabilities
Chapter 7 bankruptcy handles shared debts differently based on how the debt and property are set up. Sorting accounts into three groups shows who is still on the hook and which assets are at risk:
- Unsecured and cosigned debts: This group includes credit cards, medical bills and cosigned personal loans. Bankruptcy may wipe out the filer’s share of the debt. However, the creditor can still go after the co-debtor who did not file.
- Joint secured debts: A secured debt is tied to property, such as a home or car, that the lender can take back if payments stop. Bankruptcy may erase the filer’s personal duty to pay, but it does not remove the lender’s claim on the property. To keep a mortgaged home, the filer generally must stay current on payments. To keep a car, the filer usually must reaffirm or redeem the loan.
- Debts on tenancy-by-the-entirety property: Indiana law protects a married couple’s jointly owned home from creditors of only one spouse. That protection ends if both spouses owe the same debt. In that case the home is treated like standard property and falls under state equity limits. A bankruptcy trustee can then sell the home to pay creditors if the equity exceeds those limits.
Reviewing these debt types can help filers see how much risk a cosigner faces. It also helps them decide whether to file alone or with a spouse.
Talking to an Indiana bankruptcy attorney about joint debt
Indiana’s exemption rules and joint property laws overlap, so shared debt calls for a careful plan. An Indiana bankruptcy attorney can help protect loved ones who are not filing, make full use of legal exemptions and set up a fresh financial start.
