Effect of Bankruptcy on Joint Accounts and Co-Signers

There are many factors that determine how bankruptcy affects a joint account. The “discharge” of debt in a bankruptcy case only relieves the liability of the debtor who filed for bankruptcy. The joint account holder who has not received a discharge may still be liable for and legally obligated to the creditors. You should plan ahead for bankruptcy. By doing so, you can sort out the complex issues concerning joint accounts.

Co-Signers

While a single person can only file for individual bankruptcy, a married couple can file a Joint Bankruptcy Petition. Whether you file a joint bankruptcy petition or an individual petition, the effect of bankruptcy on co-signers are the same. In Chapter 7, the creditors can seek to recover the debt from the co-signer but Chapter 13 provides co-signer protection as long as the bankruptcy plan is active but once the plan closes, the creditors can seek to recover the debt from the co-signers. The effect of bankruptcy on co-signers also depends on the type of debt. The debt must be a consumer or personal debt and not a business debt. Also the co-signer is protected in bankruptcy and can avoid liability if he or she can prove that they are not the recipient of any benefits from the debt proceeds. 

Joint Account Holders

The liability of joint account holder in bankruptcy depends on various factors. A joint account holder who shares signing authority with the debtor is not liable, simply for that reason, for the debts. The debtor’s interest in a joint account is an asset of the bankruptcy estate. The liability of a joint account holder in bankruptcy can be reduced if the he or she can offer proof that only a certain amount of the money actually belongs to the debtor, or that the debtor’s name is on the account merely as a convenience and it is the joint account holder who really owns the account.

Debts Incurred After Bankruptcy Filing

The joint account holders will not be liable for the debts incurred by the bankrupt after the filing of the bankruptcy petition.

Get Legal Advice About Bankruptcy

You should seek the advice of an experienced bankruptcy attorney if you have a joint account and you are considering filing for bankruptcy or your joint account holder is filing for bankruptcy.