Bankruptcy and Co-signed and Joint Debts in Texas

 Posted on March 21, 2024 in Bankruptcy

When a person files for bankruptcy in Texas, it can have significant implications for their co-signed and joint debts. Understanding how these types of debts are handled in the bankruptcy process is crucial for anyone considering filing. A Texas lawyer can help you consider different factors around co-signed and joint debts for your specific bankruptcy case.

Co-Signed Debts in Texas Bankruptcy

A co-signed debt is one where two or more people are equally responsible for repaying the obligation. This is a common scenario when a family member or friend co-signs on a loan or credit card for someone who may not qualify on their own. In a Texas bankruptcy, the co-signer is still obligated to pay the full amount of the co-signed debt, even if the primary borrower receives a bankruptcy discharge.

The primary borrower's bankruptcy filing does not eliminate the co-signer's responsibility. This means the co-signer's credit score and assets remain at risk if the primary borrower cannot make payments. However, there is an important protection for co-signers in Texas. The bankruptcy automatic stay prohibits creditors from trying to collect the debt directly from the co-signer while the primary borrower's case is ongoing. This temporary protection gives the co-signer some breathing room, but it is crucial to understand it ends once the bankruptcy is complete.

Joint Debts in Texas Bankruptcy

Joint debts are those incurred by two people together, such as a mortgage, auto loan, or credit card. Unlike co-signed debts, both parties are equally responsible for the full balance of a joint debt. In a Texas bankruptcy, the treatment of joint debts depends on how the bankruptcy is filed. If only one spouse files for bankruptcy, the non-filing spouse remains responsible for the full joint debt, even if the filing spouse receives a discharge. Creditors can still pursue collection efforts against the non-filing spouse.

However, if a married couple files a joint bankruptcy petition in Texas, the situation changes. Both spouses' obligations on the joint debt are discharged, meaning neither is responsible for repaying it after the bankruptcy. This provides valuable protection for both parties. It is important to note that joint debts are still subject to the automatic bankruptcy stay. This means creditors cannot try to collect the joint debt from either spouse while the case is ongoing, giving the couple temporary relief.

Strategies for Co-Signed and Joint Debts in Texas Bankruptcy

For those facing bankruptcy in Texas with co-signed or joint debts, there are a few key strategies to consider:

• Communicate with co-signers: Openly discuss the bankruptcy plans and implications with any co-signers. This allows them to prepare and potentially seek their own legal counsel.
• Consider joint bankruptcy filing: If married, filing a joint bankruptcy petition can provide the most comprehensive protection for joint debts.
• Prioritize payments: During the bankruptcy process, it is crucial to continue making payments on co-signed or joint debts to avoid further damage to credit scores and assets.
• Seek legal guidance: An attorney can help you with the most ideal approaches for managing co-signed and joint debts in the bankruptcy context.

Contact a Schertz, TX Bankruptcy Attorney

Navigating the complexities of co-signed and joint debts during bankruptcy requires careful planning and execution. By understanding the relevant laws and strategies with a San Antonio, TX bankruptcy lawyer, you can make informed decisions to protect your interests. Chance is a Director of the San Antonio Bankruptcy Bar Association. Call Law Offices of Chance M. McGhee at 210-342-3400 for a free consultation.