What Is a Co-Debtor and How Does My Bankruptcy Affect Them?

A co-debtor is any individual, including your spouse, who signed for or took out a loan with you. It’s essentially anyone who’s agreed to be responsible for making payments for your loan(s) or agreed to pay the loan(s) if you do not. Authorized users, such as those on a credit card, aren’t considered co-debtors because they’re not responsible for repaying the credit card debt. 

Co-debtors can be affected when you file for bankruptcy. How they are affected largely depends on the type of debt and whether you file Chapter 7 or Chapter 13 bankruptcy.

Do I Have To List Co-Debtors in My Bankruptcy?

Yes, you must list any and all of your co-debtors on Schedule H of your bankruptcy petition. This includes co-debtors or co-signers on obligations such as car loans, personal loans, student loans, mortgages, or apartment leases. 

You should include:

• The co-debtor’s name and address.

• The creditor you owe the debt to.

• The schedule on which the debt appears. 

The same individual may be listed more than once if they’re a co-debtor on more than one of your debts.

Are Authorized Users Co-Debtors?

Individuals you list on your credit cards as authorized users are not co-debtors. While authorized users are entitled to use your credit card, they’re not obligated to make payments on the card. Even if you have a credit card issued in the name of an authorized user, they aren’t considered a co-debtor unless they’ve signed the credit application as a co-borrower. 

Chapter 7 Automatic Stay vs. Chapter 13 Automatic Stay

Whether you file Chapter 7 or Chapter 13 bankruptcy, as soon as you file your petition with the court, you’ll be granted what’s known as an “automatic stay.” The automatic stay prohibits any of your creditors from taking futher action to collect or enforce any debts you owe them unless those debts are excluded from the automatic stay. Typically, debts that are excluded are non-dischargeable debts in a Chapter 7 bankruptcy, such as:

• Court fines

• Alimony 

• Child support obligations

The automatic stay remains in effect until your bankruptcy case is closed or dismissed or you’re granted or denied a discharge. Importantly, the automatic stay for Chapter 7 bankruptcy cases doesn’t prevent your creditors from contacting or attempting to collect debt from co-debtors. On the other hand, the Bankruptcy Code specifically provides a “co-debtor stay” for consumer debts after a Chapter 13 bankruptcy case is filed.

How Will My Bankruptcy Affect My Co-Signers’ Credit?

When you file bankruptcy, your co-signers are still responsible for paying the debt that they co-signed on. This is true even for debt that’s discharged in your bankruptcy. As long as the co-signer continues to pay the debt, your bankruptcy won’t affect their credit. But if they fail or refuse to pay the debt, it will hurt their credit. If a co-signer doesn’t pay, they may also be subject to creditor collection or enforcement actions. In short, co-signers aren’t protected by the automatic stay in the same way a Chapter 7 filer is.

If you have a debt with a co-signer and you don’t want them to have to pay the debt you’re entitled to discharge in bankruptcy, you must “reaffirm” the debt. You do this by signing a reaffirmation agreement with the creditor. A reaffirmation agreement obligates you to continue paying the debt even after it’s discharged. 

Reaffirming a debt is a serious commitment and will affect your fresh start. It’s usually best not to reaffirm a debt just to protect a co-signer. Keep in mind that even if you want to reaffirm a debt, the co-debtor can legally still be contacted by the creditor to make payments while your bankruptcy is pending.

Does My Discharge Protect My Co-Debtors?

No. Unfortunately, your bankruptcy discharge doesn’t protect any co-debtors. Although, if you live in a community property state, it will protect your spouse from the obligation to pay community property debts, even if they didn’t file bankruptcy with you. All other co-debtors are still legally obligated to pay any debt discharged in your bankruptcy.

Let’s Summarize…

If you’re filing Chapter 7 and you have debts with co-debtors, think about how you want to manage those shared debts in your bankruptcy. You can either reaffirm the debt and keep paying on it along with the co-debtor or accept the discharge you receive in bankruptcy and let your co-debtor deal with the remaining debt. Remember that if you don’t sign a reaffirmation agreement, the co-debtor will be solely responsible for paying the debt. If they don’t pay it, there may be negative consequences, such as a ding to their credit report or potential collection actions from creditors. 

If you file Chapter 13 bankruptcy, both you and your co-debtor will be protected by the automatic stay as long as you keep making your repayments as promised in your bankruptcy filing. Your co-debtor’s credit won’t be at risk.