It isn’t uncommon for just one spouse to file for bankruptcy in Ohio if they have debt that they can no longer manage on their own. However, if this is the case, you will need to understand how bankruptcy addresses joint debt and whether or not this will still impact your co-signer.
Are you worried about filing for Chapter 7 with joint debt in Ohio? If so, check out this article, where we will discuss how Ohio bankruptcy addresses joint debt and what this means for co-signers.
What Happens to Joint Debt During Bankruptcy in Ohio?
Before you move forward with your bankruptcy case, it’s important to understand that Ohio residents are legally permitted to file for bankruptcy on their own. This applies whether you are married or have a co-signer on your debt. However, this does not mean that your spouse won’t be affected by bankruptcy, especially if they helped to co-sign on certain debts.
Another aspect of filing bankruptcy for joint debt that you need to be aware of is that the process looks different depending on the type of bankruptcy. So, here is a breakdown of how Chapter 7 and Chapter 13 handle joint debt during bankruptcy.
Chapter 7
A very popular option Ohio residents choose if they are in a substantial amount of debt is Chapter 7 bankruptcy. This is a very straightforward type of bankruptcy that discharges most types of debt so that you can have a fresh start.
However, the downside to this is that even if your personal liability is discharged, this doesn’t mean that the same rule applies to co-borrowers. So, if your spouse co-signed on the debt with you and isn’t filing for bankruptcy, they may still be held responsible for the debt.
Also, an automatic stay immediately takes effect when you file for bankruptcy, protecting you from any collection efforts. This protection does not extend to co-signers, which could mean that they may be vulnerable to collection efforts from your creditors.
Chapter 13
On the other hand, if you file for Chapter 13, this process will look quite different. This is a repayment plan type of bankruptcy that allows you to pay off your debt over a 3 to 5 year period. And once you have completed your repayment plan, certain remaining debts may be discharged.
Although not as quick as Chapter 7, Chapter 13 bankruptcy is considered to be the kinder option for co-signers. This is because Chapter 13 has a co-debtor stay, which works much like an automatic stay. So, co-signers will be protected from collection efforts from creditors the same way you are protected as the person filing for bankruptcy.
And by the time you have completed your repayment plan, you will have settled the majority of your debts, removing your personal liability and the liability of your co-signer. Just keep in mind that creditors could petition the court to lift the co-debtor stay if the circumstances allow.
Common Types of Joint Debt
Unfortunately, it is very common for spouses to share the majority of their debt, and not only that, but it can take various forms. Here are some examples of the most common types of joint debt that you need to be aware of before you file for bankruptcy:
- Credit cards
- Auto loans
- Personal loans
- Mortgages
If you share any of these debts with a co-signer, you need to get in touch with a bankruptcy lawyer in Ohio. A lawyer can help you decide what the best course of action is so that you can file for bankruptcy without putting your co-signer at risk.
Strategies to Protect Both Parties
Even if bankruptcy makes sense for your financial situation, it may not always be best for your co-signer. So, it is crucial that you approach bankruptcy in the right way, protecting yourself as well as your spouse.
Here are some strategies that can help you do just that:
- Refinancing: One of the best ways to protect a co-signer from the repercussions of bankruptcy is to refinance debt. Refinancing transfers the responsibility of the debt to you so that the creditors cannot hold your co-signer responsible when you file for bankruptcy.
- Filing jointly: In cases where there is a significant amount of joint debt, the obvious solution is to file for bankruptcy jointly. This provides all of the same benefits of filing for bankruptcy, in addition to protecting both parties from collection efforts and discharging the liability of both filers.
- Negotiating with creditors: In some cases, you may be able to negotiate with your creditors and come up with an informal repayment plan. If this is the case, they may agree to have you make monthly payments until your debt is paid off in full so that they do not need to go after your co-signer.
Additionally, if you meet the qualifications of Chapter 13 bankruptcy, this is considered to be the ideal option for those with joint debt.
FAQ Section
Will creditors still contact my spouse if only I file bankruptcy?
Maybe, if your spouse is a co-signer on any of your debt. Although it usually isn’t allowed if you file for Chapter 13, since co-signers are given a level of protection that they don’t have in Chapter 7 cases.
Can both spouses file separately?
Yes, Ohio law does allow spouses to file for bankruptcy on their own. However, keep in mind that this can complicate things, especially if there is shared debt.
Does Chapter 13 better protect co-signers?
Yes. Chapter 13 bankruptcy provides a co-debtor stay, which works much like the automatic stay, protecting co-signers from collection efforts.
Will joint debt affect my spouse’s credit?
This is a possibility if any payments are missed or accounts are defaulted.
Hire a Bankruptcy Attorney in Ohio
Going into bankruptcy with co-signed debt can make this process feel quite confusing, especially if you don’t want this to negatively affect your co-signer. Richard P. Arthur, Attorney at Law, has extensive experience handling bankruptcy cases across Ohio and can help you navigate joint debt in the best way possible. To proceed with your case, contact us today at 937-254-3738 for a free consultation.