How Will Bankruptcy Affect Someone Who Cosigned On My Debt?

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Chapter 7 Bankruptcy:

Person Filing Surrenders Property

Grandmother and Granddaughter HuggingFirst of all, keep in mind in order to file a Chapter 7 bankruptcy you must be current on everything unless you are willing to surrender the property.   Let’s consider the following example:  you owe on a debt such as a car loan, but are behind on the payments.  You come in for a free consultation, learn that you may be eligible to file a Chapter 7 bankruptcy, and decide you are going to surrender the property to the creditor since you are behind on payments.  However, someone has cosigned on the debt with you, and you are wondering what that is going to mean for the other person.  He or she (the cosigner) would still be responsible for the full amount that is owed to the creditor.  The creditor will typically sell the property an auction and the cosigner will be responsible for the deficiency balance.

If the debt is an unsecured debt (no property as collateral) then the creditor can go after the cosigner for the full amount owed on the debt.

Person Filing Keeps Making Payments

If the person filing the bankruptcy continues to make payments on the debt, the cosigner should not be impacted most of the time.  However, this means the person filing needs to keep making their regular payments on time, every month, in order to stay current.  If the property is not surrendered in a Chapter 7 bankruptcy, the cosigner should not be affected as long as the person filing is current on the property.

Chapter 13 Bankruptcy:

Person Filing Surrenders Property

If you are filing Chapter 13 bankruptcy and have decided to surrender property, the cosigner will be affected in regards to the debt.  Typically speaking, the creditor will still seek the amount owed from the cosigner and hold them responsible for the debt amount after it has been sold at an auction.  It’s up to the person filing whether or not to let the cosigner know that they are going to be surrendering the property.  However, it’s important to know the cosigner will be responsible for paying back the deficiency balance on the debt.

Person Filing Does Not Surrender Property

In a Chapter 13 bankruptcy, if the person keeps making payments on the property and decides not to surrender it, the cosigner will not be affected most of the time.  Chapter 13 bankruptcy is a repayment plan but as long as the person filing is making payments on the debt, the cosigner should not be impacted. However, there have been rare situations where we have seen someone who has cosigned on a debt with a person who filed a Chapter 13 bankruptcy and on the cosigner’s credit it shows they are one month behind on payments despite the fact that it is being paid within the Chapter 13 bankruptcy plan. Since the Chapter 13 bankruptcy Trustee does not make the full payment each month (they typically pay 1/60th of the amount owed over the course of 60 months) the creditor may report that the cosigner is behind a portion of a payment. This doesn’t happen often but we have seen it before so we wanted to be sure to make you aware of it.

What If I Accumulate New Debt in Bankruptcy?

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Father and Daughter Surfing the WebBankruptcy usually includes all debts that are accumulated before the bankruptcy petition is filed with the court. If there are new debts that are incurred after you file for a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, these are known as post-petition debts and cannot be included in your current bankruptcy.

However, if you were to file another bankruptcy later, the new debts could be included in that petition. There are ways that you can amend your petition to add a creditor after the petition has been filed, but you must be able to prove that this debt was accumulated before the petition was filed.

While in a Chapter 13 bankruptcy, you must get permission from the court in order to incur new debt. This is done through a Motion to Incur Debt. You would need to file the motion to incur debt for anything from obtaining a new credit card to buying a new house. Say you were to get a new credit card while in a Chapter 13 and not tell the Trustee about it. The bankruptcy Trustee could find out and you obtaining debt without the court’s permission could cause problems. This could even possibly cause your bankruptcy to be dismissed! If your bankruptcy is kicked out or dismissed you would be responsible for that new debt as well for the debt that was originally included in the bankruptcy. So, be smart and make sure to ask your attorney what you need to do if you believe you left someone off of your bankruptcy.

The bottom line is you typically will not be able to include post-petition debts (debts incurred after your bankruptcy has been filed) in your bankruptcy.

What if I Lose My Job During Bankrupty?

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If you lose your job while in an active Chapter 7 bankruptcy or Chapter 13 bankruptcy, it may impact bankruptcy filing.  If you are able to obtain unemployment benefits, you may be able to continue to meet your financial obligations.  However, the impact of the loss of employment on each type of bankruptcy will vary.

Chapter 7 Bankruptcy

Dad & Son Playing in Backyard

If you are in a Chapter 7 bankruptcy, the loss of a job may impact your ability to pay for a home, an automobile, or other assets.  If you are concerned about your ability to continue to pay these debts, you should speak with your attorney about options available to you including surrendering or giving up the assets in your bankruptcy.  The last thing you want to happen after completing a Chapter 7 bankruptcy is to have a repossession of an auto or the foreclosure of your home listed on your credit.  Often, the auto finance company and the mortgage company will look for you to pay any deficiency balance, the difference between what you owe on the asset and what they sell it for at auction, after the sale of the auto or home. Again, the purpose of the Chapter 7 was to eliminate your debts and give you a fresh start, so a foreclosure or repossession and a deficiency balance is the last thing you need.

Chapter 13 Bankruptcy

If you are in a Chapter 13 bankruptcy, the loss of a job will most likely impact your ability to make payments to the Chapter 13 Trustee.  As a result, you should contact your attorney to see if a modification of the Chapter 13 is possible.  In some cases, the amount paid to unsecured creditors, including credit cards, medical bills, personal loans, etc., can be reduced.  However, this is not always possible.  In that case, you may need to consider whether it is in your best interest to surrender or give up an asset in the Chapter 13 bankruptcy.  For example, some clients choose to surrender a car in their bankruptcy in order to afford the Chapter 13 payments and retain their home.  In other cases, the Chapter 13, regardless of the modifications, is no longer feasible.  In that situation, you should speak with your attorney to determine if converting to a Chapter 7 bankruptcy is an option for you.  By converting to a Chapter 7 bankruptcy, you would be able to eliminate your responsibility for the majority of your debts.   Again, you should speak with your attorney to determine the best option for your situation.

Will My Employer Find Out About My Bankruptcy?

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Duncan Law was founded by Terry Duncan in Charlotte, North Carolina, in 1996. At that time Terry decided to create a law firm that was dedicated to helping those who are facing tough times. In 2009, Damon Duncan and Melissa Duncan joined the firm in the Greensboro, North Carolina office. Together, this family is here to serve you. We know that too often bad things happen to good people. We are here to help.

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What is Chapter 13 Bankruptcy?

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Generally, a Chapter 13 bankruptcy is a reorganization plan bankruptcy, or a legal way to pay back a portion or all of the debts that you owe. In Chapter 13 bankruptcy, you are usually able to keep your house and/or car. The most common reason for filing a Chapter 13 bankruptcy is to allow you to catch up on your house and/or car payments and stop a foreclosure or repossession. In a Chapter 13 bankruptcy, your secured debts including what you are behind on your house, your mortgage payment(s) and what is owed on your car, and a portion of your unsecured debts including credit cards and medical bills will be repaid over a 3 to 5 year time period.

How Does Chapter 13 Bankruptcy Affect My Credit?

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Contrary to what you may hear from some people, there is either little or no difference to your credit score based upon you filing a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.  You should first understand the difference between your credit score and your ability to obtain credit. Often, these words are used interchangeably and confusion can occur. Your credit score is the number the credit reporting agencies assign to your credit. It is based on your history of making payments on your debts. Your ability to obtain credit is based on your ability to make payments in the future and is determined by your income and your debts. If your debts exceed your ability to make payments, you may be unable to obtain credit even if you have consistently paid your debts on a timely basis. In other words, you may have a good credit score yet be unable to purchase a car because you have too much debt. Filing Chapter 13 bankruptcy will most likely reduce your credit score in the short-term. However, filing bankruptcy also eliminates many of your debts and may improve your ability to obtain credit in the future.

What is Credit Counseling?

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With the new bankruptcy laws in 2005, Congress passed legislation requiring a person filing bankruptcy to take a credit counseling course within the 180-day period preceding the date the bankruptcy case is filed with the court. A certificate of completion must be filed with your bankruptcy. Most of the approved credit counseling companies provide the course online and the fees vary by company. However, it is important that you take your credit counseling course from an approved credit counseling company.

Can My Chapter 13 Payment Change?

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It is possible that your Chapter 13 bankruptcy payment can change over the course of your bankruptcy. You will want to discuss this issue with your attorney in more detail.

A few common reasons are as follows:

If your monthly mortgage payment or Conduit Payment is included in your Chapter 13 plan payment and your mortgage payment increases as a result of as a result of a variable rate mortgage.

If a claim is filed in your bankruptcy by a creditor that is significantly higher than what was originally scheduled.

If additional attorney fees/”non-base” fees are added to your bankruptcy. See your attorney for more information on what non-base fees may apply.

If you fall behind on your Chapter 13 payments and the Trustee files a Motion to Dismiss. The Trustee may have to increase your plan payments to make up for the payments you missed.

Typically, the Chapter 13 bankruptcy payment will not change.  However, in a 36-60 month or 3-5 year time period a lot of things can happen to change that.  Again, you’ll want to touch base with your attorney to find out if your unique situation may cause your Chapter 13 bankruptcy payments to change.

Will I Have to Go to Court for Bankruptcy?

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Typically speaking, no you will not have to go to bankruptcy court.  However, you will have to attend what is called a creditors’ or 341 meeting.  This is not the same thing as bankruptcy court. One of the key differences is that in bankruptcy court you will actually appear in front of a bankruptcy judge.  In a creditors’ meeting you will only appear in front of the Trustee.  The Trustee is the person who represents your creditors, the people you owe money to.

With that said, at times there will be situations where it is necessary to go to court.  I would estimate that 98/100 times you will not have to go to bankruptcy court.  If you do have to attend bankruptcy court, don’t stress out about it.  Your attorney should make sure you are well prepared and it usually only lasts for a few minutes.  If there are other questions that we can answer for you don’t hesitate to contact our bankruptcy law firm.

Why Do I Have to Take a Credit Counseling Course?

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Father and Daughter on ComputerIf you are considering filing bankruptcy, you are probably aware of the Bankruptcy Court requirement that you complete a credit counseling course prior to filing your bankruptcy, and that you complete a financial management course prior to receiving your discharge from your bankruptcy.

When the bankruptcy laws changed in 2005, one of the major changes was the new requirement of the credit counseling and financial management courses. One reason for these new requirements was so that debtors will be better informed and educated regarding their financial situation, budgeting, and obtaining credit.

While it is fairly easy to obtain the necessary credit counseling and financial management certificates, you must be aware of certain requirements and limitations.

First, your credit counseling and financial management certificates must be obtained through a Bankruptcy Court approved credit counseling agency. In other words, you cannot just find any credit counseling agency and obtain a certificate. You need to check with your attorney and/or local Bankruptcy Court to find out which credit counseling agencies are approved.

Second, there are time limitations for obtaining the necessary certificates. Your credit counseling course certificate must be obtained within 180 days prior to your bankruptcy filing. In other words, if you take the credit counseling course on January 1 and receive a certificate but do not file your bankruptcy petition with the Court until August 1, you will need to re-take the course and obtain a new certificate prior to the filing of your bankruptcy petition.

Your financial management course certificate must be obtained and filed with the Court prior to the entry of the discharge of your debts. This date is usually four to six months after you file your bankruptcy petition. As a good rule of thumb, you should take your financial management and file the certificate with the Court anytime between 10 days after the filing of your bankruptcy and prior to your first Creditors’ Meeting. By sticking with this time frame, you will avoid any potential discharge issues related to your financial management course.

Although the credit counseling and financial management course requirements may seem as though it is just one more hoop to jump through with your bankruptcy filing, most people find that the courses are actually helpful in planning for the future after your bankruptcy filing, so that you can receive a true fresh financial start.