Filing for Chapter 13 bankruptcy can help you reorganize your debts and create a plan to repay them over time. However, many people have debts that they share with another person, which can create confusion during the bankruptcy process.
One important feature of Chapter 13 is how it treats joint liabilities. These may include co-signed loans, joint credit cards or mortgages. Chapter 13 offers protections that affect both the person filing and their co-debtor.
How automatic stays affect co-debtors
When someone files for Chapter 13 in New Jersey, the court places an automatic stay on collections. This means creditors must stop trying to collect from the filer. Chapter 13 also includes a special protection called the co-debtor stay. This stops creditors from trying to collect certain consumer debts from someone else who shares the debt, as long as the filer keeps making payments under the repayment plan.
This protection applies only to consumer debts, not business debts. It also does not protect co-debtors if the repayment plan does not fully pay the debt. If the court removes the co-debtor stay or if the filer fails to keep up with the payments, creditors may pursue the other person who shares the debt.
Do co-debtors have to pay for discharged debts?
In a joint liability, both people are responsible for the full amount owed. Chapter 13 does not erase the co-debtor’s responsibility for the debt. Even after the filer completes the plan and receives a discharge, creditors may still seek payment from the co-debtor for any unpaid amount that was not covered by the plan.
Chapter 13 can help manage joint debts by allowing the filer to pay the full balance through the repayment plan. This can protect the co-debtor from collection efforts during and after the case. However, the filer must stay current on payments to maintain this protection.
Joint debts require careful planning to avoid putting financial strain on others. With a clear repayment strategy, though, Chapter 13 bankruptcy can offer a structured path forward while also easing the burden on co-debtors.
