No Asset Bankruptcy

No Asset Bankruptcy

In the realm of bankruptcy, a distinct avenue known as “no-asset Chapter 7 bankruptcy” emerges, offering individuals a strategic approach to safeguard their possessions. This term underscores the notion that individuals undergoing bankruptcy possess no assets liable for liquidation by the bankruptcy trustee to settle debts owed to creditors.

This article delves into the intricate landscape of no-asset bankruptcy, shedding light on the intricacies of asset listing, exemptions, tax debt, and the pivotal roles of bankruptcy trustees. From the strategic use of bankruptcy exemptions to the complexities of distinguishing between asset and no-asset cases, explore how this unique bankruptcy approach empowers individuals to retain ownership of their assets while navigating the intricacies of the bankruptcy process.

Listing Your Assets: Navigating Bankruptcy Law’s Requirements

When filing for bankruptcy, you must provide a comprehensive list of all your possessions, which if they have any value, then they are considered assets in the bankruptcy.


These possessions encompass various categories:

  1. Residence: This includes your primary residence.
  2. Household Items: Items found within your home.
  3. Vehicle: Your car or any other motor vehicle you own.
  4. Financial Holdings: Assets such as bank accounts, investments, other property, and financial accounts.
  5. Tangible and Intangible Assets: Other physical items of value or intangible assets, which are an identifiable asset without physical substance, such as goodwill, brand equity, intellectual properties, licenses, trade marks, etc..

It’s worth noting that your asset list should also account for easily overlooked items like bank accounts, life insurance policies, potential inheritance, and any ongoing legal claims.

Typically, a proficient bankruptcy attorney will supply you with a workbook designed to aid in remembering and documenting your assets. It’s crucial to take your time while completing this workbook to ensure accuracy.

The significance of listing all your assets must be balanced, as neglecting to do so may result in the loss of those assets. Once your asset list is compiled, your bankruptcy attorney will evaluate exemptions to determine if your assets are protected from being claimed by creditors.

Understanding Exempt Property

Exempt property refers to assets shielded from being used to repay debts in a Chapter 7 bankruptcy case. Every state has its own defined list of exemptions apart from the federal exemption offered by the bankruptcy code, which determine the specific types and amounts of property you can keep even after filing for bankruptcy.

The concept behind exemptions is to provide individuals with the means to maintain a basic standard of living and have a fresh start and financial beginning. In other words, you can keep particular money and assets necessary for your well-being.

If an asset is considered exempt according to bankruptcy law or the laws of your state, it cannot be liquidated by the bankruptcy Trustee to satisfy your debts. This is crucial to prevent individuals from being left with nothing after bankruptcy.

The rules regarding exemptions can differ from state to state. Additionally, some states allow you to choose between the federal exemptions, the state’s established exemptions, or the federal and state exemptions as provided by the bankruptcy code. This choice is typically determined by the state where you file for bankruptcy. This decision influences the types and values of assets you can protect from being liquidated during the bankruptcy proceedings.

No Asset Case

No Asset Case

In the realm of bankruptcy, cases referred to as “no-asset cases” signify instances where the individual initiating the bankruptcy process has strategically utilized available exemptions. This strategy effectively prevents the bankruptcy trustee from auctioning any possessions or assets to settle outstanding debts owed to the person filing by creditors.


Essentially, the term “no-asset cases” highlights a situation where strategic use of exemptions empowers individuals to safeguard their possessions from being liquidated during bankruptcy proceedings.

Not All Non-Exempt Assets Are Lost in Bankruptcy

If you can safeguard all your possessions using bankruptcy exemptions, your case will be categorized as a no-asset bankruptcy. In this situation, the Chapter 7 trustee overseeing your case won’t have the authority to sell any of your belongings. Most Chapter 7 bankruptcies fall under the category of no-asset cases.

Once the court recognizes that your case is a no-asset one, a notification is sent to your creditors. This notification informs them that they won’t receive any payments through the bankruptcy proceedings and, as a result, they don’t need to submit a proof of claim detailing the amount owed to them.

However, if the trustee discovers assets during the investigation of your bankruptcy case, they will inform the creditors of this discovery. Subsequently, creditors will be allowed to file the necessary paperwork to claim a share of the funds from the sale of these assets.

In essence, a no-asset bankruptcy case hinges on the ability to shield your personal property by using exemptions, ensuring that your belongings remain untouched by the bankruptcy process unless circumstances change during the trustee’s investigation.

The Distinction Between Asset and No-Asset Cases: Implications for You and Your Creditors

The decision to file either an asset or a no-asset bankruptcy case holds significance for you and your creditors. Understanding this distinction sheds light on the consequences for both parties who file bankruptcy together.

In a no-asset case, you don’t forfeit your possessions, ensuring your property remains intact. However, this means your creditors won’t receive any payments through the bankruptcy process.

Working with a bankruptcy lawyer who knows the differences between federal bankruptcy and state law chapters proves the best course to keep your assets.

Conversely, you should surrender specific property in an asset case. Additionally, your creditors can be compensated if they adhere to the law and appropriate protocols.

Here’s how the process unfolds:

  1. Notification to Creditors: The court sends notifications to your creditors once you initiate the first bankruptcy petition process. This notice includes essential details such as the case number, the trustee’s name, and the date and time for the meeting of creditors hearing.
  2. Asset Case: If your Trustee determined that your case is classified as an asset case, the notification specifies a deadline by which creditors must complete a proof of claim form. This form allows them to claim some of the funds available for distribution.
  3. Changing from No-Asset to Asset: If your case begins as a no-asset case but later the bankruptcy trustee identifies assets, an updated notification will be sent. Considering individual circumstances and the newfound assets, this notice will include a new deadline for filing a proof of claim.

The distinction between asset and no-asset cases has a considerable impact. It determines the fate of your property and the potential payment your creditors might receive, contingent upon their adherence to the outlined procedures.

The Core Responsibilities of a Chapter 7 Trustee in an Asset Case


In an asset case within Chapter 7 bankruptcy, the pivotal task of the trustee revolves around optimizing the cash recovery for the debtor’s unsecured creditors by liquidating nonexempt assets. This process is executed as follows:

  1. Identifying Nonexempt Assets: The trustee first identifies assets not eligible for exemption by the debtor’s debts. These assets hold a potential value that can be used to pay off the debtor’s unsecured creditors.
  2. Maximizing Returns: The trustee’s objective is to maximize the returns from these nonexempt assets. To achieve this, they assess the assets and their associated value.
  3. Liquidation: If an asset is unencumbered by liens and isn’t exempt from bankruptcy, the trustee might choose to sell it. If the asset’s value surpasses any attached liens or security interests and exceeds the exemption claimed by the debtor, it becomes a viable candidate for liquidation.

The essence of this approach is to generate the highest possible amount of proceeds from the sale of nonexempt assets. These funds are then allocated toward satisfying the claims of unsecured creditors, such as credit card companies and medical bill providers. The trustee’s decision to sell a particular asset hinges on whether the sale would yield a substantial enough sum to cover expenses while leaving a surplus for creditors.

In summary, the Chapter 7 trustee in an asset case plays a pivotal role in converting nonexempt assets into funds that benefit the debtor’s unsecured creditors. This is achieved through careful evaluation, valuation, and, if deemed necessary, the sale of these assets.

Instances When the Bankruptcy Trustee Chooses Not to Liquidate Assets

In specific scenarios, when a portion of your assets isn’t eligible for exemption, the trustee might decide to abandon those assets.

Realizing that selling your assets wouldn’t yield sufficient funds to distribute among unsecured creditors after accounting for costs, the trustee would likely opt not to sell them. Consequently, you would be allowed to retain ownership.

When the nonexempt portion of your asset is minimal and selling it would not yield a practical benefit for the creditors, the trustee might abandon liquidating the asset. This safeguards your ownership of the asset while recognizing the practicalities of the situation.

What Is A Reaffirmation Agreement In A Chapter 7?

What Is A Reaffirmation Agreement In A Chapter 7?

Imagine you’re driving down a road of financial difficulties and decide to take a detour called “Chapter 7 bankruptcy” to help you get your car payment back on track. This detour has a particular signpost called a “reaffirmation agreement.”

This agreement is like a contract that gives the debtor and your creditors (the people you owe money to) a chance to make you responsible for a debt again, even if the bankruptcy was by law supposed to wipe it away. It’s like giving them a second chance to ask you to pay up.

Benefits of A Reaffirmation Agreement in Chapter 7 Bankruptcy


Benefits of A Reaffirmation Agreement in Chapter 7 Bankruptcy


Reaffirmation agreements offer a secure path to keeping your collateral, like a car, if you follow the agreement’s rules and make your payments on time. When you stay up-to-date with auto loan payments, the lender cannot take back what you’ve bought.

Reaffirmation may allow you discuss new terms for various secured loans, such as lowering your payments, interest rate, or total payment over time. But remember, the lender doesn’t have to agree to these new terms, and most reaffirmation agreements stick to the same terms as the original deal.

Downsides of A Reaffirmation Agreement


Downsides of A Reaffirmation Agreement


You’ve got it right! When it comes to reaffirmation agreements, there’s a critical downside you need to be aware of:

Biggest Drawback: The major downside of signing a reaffirmation agreement is that it locks you into debt, meaning you will remain liable on the debt even after you receive your bankruptcy discharge. If you need to catch up on payments for something like your car loan, the lender can take your car back. If you’ve agreed to reaffirm the debt, you’re on the hook for paying any remaining amount owed even after they take it back. If you don’t pay, the lender can take legal action. After they obtain a judgment for not paying the loan back and having a remaining balance, they will begin garnishment actions, which may include taking money from your paycheck or bank account – this is called garnishing.

Here’s why this is a significant concern:

Long-Term Impact: After a Chapter 7 bankruptcy, you can’t file for another Chapter 7 bankruptcy for eight years. So, if you’ve reaffirmed debt and struggled to pay it off, these collection efforts could affect you for many years, and your only bankruptcy option thereafter would be a chapter 13 reorganization bankruptcy.

Choose Wisely: You should only agree to reaffirm if you can handle paying off the remaining balance by affording the regular monthly payment on a long term basis. It’s a big decision that affects your financial future.


Biggest Drawback


While reaffirming a debt might be a way to maintain possession of something like your car, it’s crucial to do so with a clear understanding of your long-term commitment. If there’s any doubt about your ability to pay, considering other options is usually wiser.


How Reaffirmation Agreements Work: A Step-by-Step Guide


How Reaffirmation Agreements Work: A Step-by-Step Guide


If you’re thinking about sticking with debt after filing bankruptcy again, here’s how reaffirmation agreements play out in bankruptcy cases:

  1. Eligibility and Equity: You can only consider a reaffirmation agreement if you’re up to date on your mortgage and car payments and the value of your car (minus what you owe on it) is protected by specific rules called exemptions. These rules vary depending on where you live. Remember, the mortgage and car’s value minus what you owe is called equity.
  2. Voluntary Choice: Nobody can force you into a reaffirmation agreement. It’s your decision, and you remain responsible for it.
  3. Let the Court Know: Tell the court about your wish to reaffirm a debt. You do this on a form called the “Statement of Intention.”
  4. Contact the Lender: Mail a copy of your “Statement of Intention” to your lender. Ask them to create a reaffirmation agreement and send it to you.
  5. Read and Sign: When you get the agreement from the lender, read it carefully to make sure the terms are accurate. If it looks good to you, sign it. Ensure you provide any necessary information on-time payments to show that you can continue making payments.
  6. Timely Submission: Return the signed agreement to the lender within 45 days of your first creditor meeting with creditors.
  7. Court Approval: The lender’s bankruptcy lawyer will submit the agreement to the bankruptcy court. The court will then decide if it willapprove it. They consider whether you can afford to keep paying the loan if the debt exceeds the car’s value or the interest rate is too high.
  8. Financial Review: The court reviews your post-bankruptcy budget (in Schedules I and J) to ensure you can easily handle the loan payments. If not, they might reject the agreement. Their main concern is your financial security, interest, and well-being.

Remember, bankruptcy is a fresh start. If the court thinks sticking with the debt isn’t the best idea for your financial health, they might refuse the reaffirmation. But even if that happens, you’ll still have a car. The bankruptcy judge may find it better to return the vehicle and buy one that fits your new budget.

Differences Between Secured And  Unsecured Debt


Differences Between Secured And  Unsecured Debt


Secured Debts: These are loans where you offer something valuable (like a car or a house) as a promise to the lender that you’ll repay the borrowed money. This helpful thing you offer is called collateral. If you can’t repay the loan, the lender can take that collateral to compensate for the lost money. Because they have this security, these loans are considered safer for lenders, so the risk of you not paying is lower.

Unsecured Debts: With these loans, there’s no specific thing you promise to give the lender if you can’t pay. Credit card debt and medical bills are common examples. Since the lender doesn’t have a guarantee like collateral, these loans are considered riskier. If you pay, the creditor can directly take back something valuable from you.

Remember, when dealing with secured debts, the lender has something to fall back on if you can’t pay. Unsecured debts rely more on your promise to repay and your credit history. A bankruptcy attorney’s help can make a difference in your specific case.

A bankruptcy attorney knows how to protect your assets and can help you navigate the different bankruptcy chapters to decide what bankruptcy works best for you.

Before You Go To Bankruptcy Court


Before You Go To Bankruptcy Court


If you’re interested in a reaffirmation agreement, here’s how you go about it:

Timing is Key

You need to express your interest in a reaffirmation agreement after you’ve filed for bankruptcy but before the lender’s claim on the collateral of secured debt (like your car) is canceled. This usually happens when the bankruptcy process is still ongoing.

File a Statement

You start by submitting a “Statement of Intent” to the court. This tells the court and creditors you want to reaffirm a specific debt.

Notify the Lender

You may also send a copy of this “Statement of Intent” to the lender. This lets them know you’re considering a reaffirmation agreement. Most lenders after receiving the notice of intent will reach out to your attorney providing the required reaffirmation agreement.

Legal Help

Working with a bankruptcy lawyer is often a good idea. They can help you review and negotiate the reaffirmation agreement terms. They know the legal ins and outs to ensure your best interests are considered.

Review by the Judge

Sometimes, there might be a reaffirmation hearing where the judge looks at the agreement. This ensures that both you and the lender are being treated fairly. The same judge reviews and ensures it’s a good deal for both parties.

Signing and Filing

Once you and the lender have agreed on the terms and conditions, you put your signatures on the reaffirmation agreement documents. Then, the agreement is submitted to the court. This makes the agreement official and legally binding.



Remember, seeking professional advice and guidance from a bankruptcy lawyer can help you navigate this process smoothly and make decisions in your best interest.

Keeping Your Car After Bankruptcy


Keeping Your Car After Bankruptcy


When you originally got a loan for your car, you made a deal with the lender. This deal included a set monthly payment and specific rules to follow. A reaffirmation agreement is like a promise you make to the lender during a bankruptcy case. It says you’ll stick to the original deal and keep paying off the car loan, even while going through bankruptcy. In return, you’re allowed to keep the car.

Some lenders might ask you to sign a reaffirmation agreement to keep the car after filing for bankruptcy. Others might let you own the vehicle if you make payments, even if you don’t sign this agreement.



Lenders have a say in what you do with the car because car loans are called secured debts. This means the car guarantees to repay the loan, and the loan gives the lender certain rights over the vehicle. They can take back the car legally if you don’t follow the loan rules. Whether you sign a reaffirmation agreement, you must pay off the loan to keep the vehicle. This rule applies even after you’ve filed for bankruptcy.


In conclusion, a reaffirmation agreement is a significant decision in bankruptcy, offering a chance to keep assets while committing to debt relief. Balancing the benefits of asset retention against the potential long-term obligations is crucial, making expert advice a valuable resource in navigating this complex terrain.

Bankruptcy, Mortgages, and Reaffirmation Agreements

If you’re a homeowner and you find yourself in a Chapter 7 bankruptcy situation, the idea of mortgage reaffirmation might arise. Your lender might send a reaffirmation agreement to your bankruptcy lawyer, but the question is: should you sign it?

Benefits of Reaffirming Your Mortgage Debt



A Reaffirmation Agreement is like a promise that people dealing with Chapter 7 bankruptcy can make. Some of your debts are wiped away when you go through Chapter 7 bankruptcy. But with this agreement, you can keep owing money on things like your car, boat, or valuable items.

When you decide to reaffirm a debt during bankruptcy, you’re giving up the safeguard that comes with the bankruptcy discharge. Instead, you agree to stay responsible for the debt personally, even after the bankruptcy is closed.

By reaffirming, you commit to making regular mortgage payments, which can contribute positively to your credit history. This sustained payment behavior demonstrates responsibility and can aid in improving your credit score over time.

Additionally, reaffirming the mortgage ensures you can continue living in your home without the risk of foreclosure as long as you stay current on payments.

Reaffirmation might not appear concerning for individuals who wish to hold onto their homes or other assets tied to debt. After all, they intend to keep making payments, so it might seem insignificant to be obligated to do so by law.

Mortgage Payments and Reaffirmation Agreements



When you file for Chapter 7 bankruptcy, the bankruptcy’s automatic stay (the bankruptcy protection) prevents your creditors from taking any action against you outside of bankruptcy, and if you made any repayment arrangements with your creditors, then those arrangements will be void and your debt reverts back to the contract.  . But if you sign a Reaffirmation Agreement, it’s like making those deals active again. Usually, you need to be up-to-date on your payments, although sometimes you can include a small amount of missed payments in this new deal.

To make it official, a Reaffirmation Agreement must be submitted within 60 days after the initial scheduled 341(a) Meeting of Creditors. But remember that this timeframe can be stretched if the Bankruptcy Court grants the creditor an extension or if there’s an extension to the date of discharge.

The Top Risk in Reaffirmation



Now, if you’re a homeowner and decide not to keep being responsible for your mortgage after bankruptcy, that’s okay. You won’t have to pay that debt anymore, but you might lose the property if you stop paying. The bank can foreclose on the property, but that’s their option.

But here’s where it gets tricky: if you decide to stick with the mortgage and reaffirm the debt, then you still have to make payments and if you default later you will still be personally responsible.

However, some lenders after bankruptcy will continue to accept your payments if you are current on the debt obligation even if you do not actually reaffirm the debt obligation.  This adds more risk for foreclosure even if you are current as the lender will have the right to foreclose.  .


So, the big thing to remember is that when you reaffirm a debt, you’re saying you’ll pay it no matter what, even after bankruptcy. And if you don’t, the bank can take your property and chase you for more money. It’s like an extra risk you take on if you decide to reaffirm your debts.

Understanding the Impact of Reaffirming a Debt

Imagine someone goes through Chapter 7 bankruptcy to deal with their debts. Some essential things happen if they reaffirm a debt, which means they agree to keep paying it even after bankruptcy.

First, the creditor will send the attorney the reaffirmation agreement to consider and review with the Debtor.  If the Debtor can show that they can afford the debt to be reaffirmed based upon their bankruptcy schedules, then the court will approve the reaffirmation.  If they cannot show feasibility to reaffirm the debt then the Debtor will have to convince the court that they need to reaffirm the debt and explain to the court how they will be able to afford the payment. 

The Reaffirmation Hearing

At the reaffirmation  hearing, the person who went through bankruptcy and their lawyer will explain to a judge in charge of their Chapter 7 case why  it’s a good idea for the person to stick with this reaffirmed debt. The judge wants to know whether the person can afford to make the payments every month, so the Debtor will not jeopardize their fresh start after the bankruptcy discharge is received.

It’s super important for the person to think hard about whether they can afford these payments. If they can’t and end up not making payments, the lender can take back whatever the debt is tied to, like a house or a car and then the lender will be able to collect any deficiency balance against the Debtor.

Don’t Forget Your Mortgage Lender

The mortgage lender can also sue the person for any unpaid money because the Reaffirmation Agreement cancels out the usual protection from foreclosure that comes with bankruptcy.

Remember that if the court has approved a Reaffirmation Agreement, you have 60 days to change your mind and cancel it for any reason.

Finding the Right Bankruptcy Attorney To Reaffirm Debt



Reaffirming a mortgage can be particularly risky when the house’s value is lower than the mortgage balance amount, this is known as being “underwater.” If the homeowner loses the house, they might be responsible for the remaining difference in debt.

Anyone going through the bankruptcy process which decides to reaffirm should seriously consider the higher chances of facing significant future financial responsibility and the added time and cost in the bankruptcy procedure.

Before signing this kind of agreement, it’s wise to talk to a lawyer and consider whether it’s the right choice. It might only sometimes be the best move, depending on their situation.

Only Reaffirm With a Lawyer (And a Good One!)

If you need clarification on bankruptcy or reaffirming your home loan, it’s best to consult experts. Consider reaching out to a real estate or bankruptcy attorney for guidance. Additionally, talk to your tax professional to understand the tax implications of your option. Getting advice from professionals can provide clarity and help you make informed decisions.

Tips for Finding an Excellent Bankruptcy Attorney

Selecting the right bankruptcy attorney to reaffirm a debt is crucial. Follow these steps:

  1. Research: Find attorneys in your area.
  2. Experience: Choose one experienced with reaffirmation agreements.
  3. Reviews: Read client reviews for insights.
  4. Consultations: Schedule meetings with potential attorneys.
  5. Questions: Ask about their approach and success rate.
  6. Fees: Understand their pricing structure.
  7. Communication: Ensure they’re transparent and responsive.
  8. Compatibility: Work with someone you feel comfortable with.
  9. References: Request references from past clients.
  10. Trust Instincts: Choose someone you trust and feel confident in.
  11. Engagement Agreement: Review and sign the agreement.

Choosing the right attorney can significantly impact your reaffirmation process and financial security.

Can I Sell My House if I Did Not Reaffirm?



You could sell your house even if you didn’t reaffirm the mortgage during bankruptcy. In this situation, you still maintain ownership of the property, and because you didn’t reaffirm the mortgage, you’re still not personally liable or responsible for the mortgage debt.

If you choose to sell the house for an amount lower than what you owe, commonly known as a “short sale,” you may be held accountable for any remaining balance on your mortgage, so it is very important to make sure you have the proper legal counsel before closing on this type of sale. However, it’s important to note that such a sale would need your mortgage lender’s approval.

This process enables you to sell the property without carrying the burden of the mortgage debt and potential shortfall, given that the lender agrees.

Bankruptcy And Cosigners Joint Debts

Declaring bankruptcy erases certain debts, so you don’t have to repay them. However, if someone else, like a cosigner or joint account holder, co-signed or is responsible for the debt with you, they still have to pay it not to be considered in default. Here’s what happens:

  • If you file for Chapter 7 bankruptcy, the creditor can still collect from the cosigner.
  • If you file for Chapter 13 bankruptcy, the creditor must pause their collection actions to comply with the Co-Debtor Stay.
  • You can protect the cosigner by paying off the debt alone.

What Is A Cosigner?



A cosigner is a person who agrees to take responsibility for repaying a loan if the primary borrower is unable to do so. Lenders may ask for a cosigner when the primary borrower has a limited or poor credit history or low income. Having a cosigner improves the chances of the loan being approved because the cosigner is considered creditworthy and can be pursued by the lender if the principal borrower defaults on monthly payments.



Cosigners and guarantors are similar but have some differences. Creditors can try to collect from both cosigners and primary borrowers at the same time if there’s a loan default. However, with guarantors, creditors must first attempt to collect from the primary borrower before going after the guarantor. In the case of bankruptcy, both cosigners and guarantors are treated the same way, as they both become personally liable for the debt.

Will Bankruptcy Affect Joint Accounts?



Cosigners and guarantors are similar but have some differences. Creditors can try to collect from both cosigners and primary borrowers at the same time if there’s a loan default. However, with guarantors, creditors must first attempt to collect from the primary borrower before going after the guarantor. In the case of bankruptcy, both cosigners and guarantors are treated the same way, as they both become personally liable for the debt.

Will Bankruptcy Affect Joint Accounts?



Under Chapter 7 bankruptcy, the automatic stay, the legal protection that prevents creditors from pursuing collection actions against the debtor, does not extend to cosigners and guarantors.

When the debtor files for Chapter 7 bankruptcy, creditors can pursue collection action against the cosigner or guarantor for repayment as if the debtor had defaulted on the loan. This means the cosigner or guarantor may be held responsible for the debt and may face collection actions from the creditors. Cosigners and guarantors must know this risk when agreeing to cosign or guarantee a loan for someone else. The debtor filing for bankruptcy should notify the cosigner or guarantor of the bankruptcy at the time of bankruptcy filing.

Safeguarding Cosigners and Joint Account Holders Post Chapter 7 Bankruptcy



If you want to keep certain assets, like a car, you can agree to remain responsible for the debt by signing a reaffirmation agreement with the lender while you are in bankruptcy. But think carefully because you won’t benefit from the loan payments after the bankruptcy discharge.

Even after bankruptcy, you can choose to keep paying your debts voluntarily. By doing so, you can ensure your cosigners and joint account holders pay debts and won’t face negative consequences. 

The Impact of Bankruptcy Chapter 13 on Cosigners and Guarantors


Chapter 13 bankruptcy protects your cosigners and guarantors, giving you more time to repay the debt you owe jointly. During Chapter 13, the automatic stay prevents creditors from collecting on consumer debts, safeguarding personal loans to your cosigners and guarantors (called the Chapter 13 codebtor stay).

However, creditors can ask the court to lift the automatic stay under certain conditions:

  • If your cosigner or guarantor benefited from the creditor’s claim.
  • If you are not planning to pay the debt in full through your Chapter 13 repayment plan.
  • The creditor will suffer significant financial harm if the stay remains in place.

Protecting Cosigners and Joint Account Holders After Chapter 13 Bankruptcy

Chapter 13 bankruptcy differs from Chapter 7 because it can safeguard cosigners and joint account holders if you fully repay the debt in your Chapter 13 repayment plan. When you file for Chapter 13, a codebtor stay protects cosigners and joint account holders from creditors trying to collect on consumer debts.

However, creditors can request the court’s permission to lift the stay under specific circumstances:

  • If the cosigner or joint account holder benefited the most from the loan, such as driving the purchased car.
  • If your Chapter 13 plan needs to pay the cosigned debt fully.
  • If the creditor would suffer severe harm if the codebtor stay continues.

Your cosigner will likely be protected if you plan to pay off the debt, like a car loan. But if some debts get paid less than usual in Chapter 13, creditors might object to your plan if it prioritizes paying the cosigned debt more and other obligations less.

Additionally, the codebtor stay ends if the court dismisses your case or converts it from Chapter 13 to Chapter 7 for bankruptcy protection.

Whether you are considering Chapter 7 or Chapter 13 bankruptcy, seeking professional legal counsel can help you navigate bankruptcy more effectively and protect your interests. Find a bankruptcy attorney right here.

Car Loan Options and Their Impact on Primary Borrower And Cosigners



If the debt you owe is typically paid back in full through your bankruptcy plan, like a car loan with only a few payments left, your cosigner would probably be protected.

This is because all creditors would still receive the same amount they were supposed to get, ensuring your cosigner loan account is safe from additional liability.

When you have a co-signer for your car loan and file for bankruptcy, there are three options you can choose to file bankruptcy:



Keep the Car and Reaffirm the Loan

If you reaffirm the car loan, you’ll still be responsible for the debt even after bankruptcy. If you miss payments, both you and your co-signer can be pursued for the remaining balance of the auto loan even after the car is repossessed



Keep the Car and Redeem it with a New Loan

Redeeming the car means paying the current value to the lender for a clear title. Your co-signer remains responsible for the car loans remaining loan balance, and if you stop paying, their credit may be affected.

Surrender the Car and Discharge the Debt

If you surrender the car in a bankruptcy filing, your obligation to pay the loan is discharged. However, your co-signer will still need to pay off the car loan, and they can keep the car if they continue making payments, regardless of who possesses the vehicle during the bankruptcy case.