Does Bankruptcy Deal with My Wife’s, Child’s or Co-Debtor’s Debts in NYC?

If you receive a Chapter 7 or Chapter 13 bankruptcy discharge in New York City the financial responsibility of your co-debtor will remain in effect.  They will still be obligated to pay the debt even though your liability has been eliminated.  It doesn’t make any difference who the first signer on the loan was.  In light of this, sometimes it makes sense for spouses to file for Chapter 7 together, but depending on the situation with your co-debtor it may be even wiser to file for Chapter 13 alone.

In a Chapter 13 case your co-debtors are protected by the automatic stay and cannot be collected against for the duration of the repayment plan.  Without a special court order from the bankruptcy judge the creditor will not be able to go after your co-debtor for at least 3-5 years.  11 U.S.C. 1301 – Stay of action against co-debtor states, “ a creditor may not act, or commence or continue any civil action, to collect all or any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor…”.  This is commonly referred to as the “Co-Debtor Stay.”

Upon filing a Chapter 13 case it is unclear as to how much each of your creditors will receive in your repayment plan.  In the repayment plan, you will make a regular payment to the bankruptcy trustee who will divide the amount and distribute it to your creditors.  The trustee decides who gets what, and after the plan is met most of the remaining debts are discharged.  Since a creditor doesn’t know how much they will be receiving they are prohibited from going after a co-debtor for the duration of the plan. This protection can offer huge benefits for our clients faced with large medical debts or student loans that have been secured with co-signers.  Keeping creditor pressure away from your friends and family that may have helped you get a loan can be a big reason to file for Chapter 13 protection.

If you are underwater financially and not making ends meet things can feel pretty desperate.  When you feel as though you may be putting a friend or family member on the line it can get even worse.  There is help available.  The bankruptcy laws are on your side, and it is possible to get the financial relief you need while protecting your co-debtors in the process.  Chapter 13 offers many other benefits aside from protecting your co-debtors to help you get the fresh start you deserve.  If you have questions about protecting loved ones in bankruptcy including your spouse, child or friends please contact the Law Offices of William Waldner online or at 212.244.2882.  We help all New Yorkers with affordable bankruptcy assistance and maintain a 99% Chapter 7 discharge record in New York City as of 8/31/16.

This article is intended for educational purposes only.  By reading this article no attorney-client privilege has been created.