When you share a debt with another person, like your spouse, a parent or a sibling, deciding whether to file Chapter 7 can raise an important concern: how will your bankruptcy affect that? The answer depends on the type of debt and the legal responsibilities attached to it.
Here are the key points you should know.
The filing debtor’s liability
A Chapter 7 discharge generally removes your personal responsibility for qualifying joint debts. For example, if you and your spouse jointly owe $10,000 on a credit card and you receive a Chapter 7 discharge, the creditor generally cannot collect that discharged balance from you personally.
The non-filing debtor’s liability
The other person generally remains responsible for the joint debt after your discharge. Your bankruptcy does not automatically release your spouse, co-borrower or other joint debtor from their separate obligation to the creditor.
Under 11 U.S.C. § 524(e), a discharge does not affect another person’s liability for the same debt. So, if your spouse remains legally responsible for the account, the creditor may still seek payment from them.
Jointly secured debts
A Chapter 7 discharge does not necessarily eliminate a creditor’s rights against property securing a joint debt. For example, if you and another person jointly finance a vehicle, your discharge may eliminate your personal liability for the qualifying debt while the creditor retains its rights under the vehicle loan.
This distinction matters because getting relief from the debt personally does not necessarily mean you can keep the property without meeting the loan’s other requirements.
Know what Chapter 7 changes and what it doesn’t
The effect of Chapter 7 depends on whose name appears on the debt and whether the debt has collateral securing it. Reviewing the specific account or loan with an attorney can help you understand how your bankruptcy could affect you and anyone who shares responsibility for the debt.