- What causes people to need Bankruptcy Relief?
- How does job loss cause bankruptcy?
- How does illness cause a person to need debt relief?
- What about bad luck?
- When should you file bankruptcy if you lose your job, fall ill, or are hit with bad luck?
- What do I lose if I file bankruptcy?
- Is bankruptcy bad?
- What will happen if you file bankruptcy?
- How much does bankruptcy cost?
- What is the real price difference between bankruptcy lawyers?
- What if I cannot afford the fee right now?
- What is the difference between GoodLawyer and other firms?
- If I am married, can I file a bankruptcy without my husband or wife?
- Will my employer find out if you file bankruptcy?
- Does Chapter 7 or 13 Bankruptcy “ruin my credit”?
- How do you know if you qualify for bankruptcy?
- Can I file bankruptcy if I have a co-signer?
- Can I file bankruptcy on bills in someone else’s name?
What causes people to need Bankruptcy Relief?
The main reasons people file bankruptcy are: job loss, illness, and bad luck. Other causes include: using credit cards for regular living expenses, and not paying them off in full every month; car accidents; getting ripped off by used car dealers; co-signing for unreliable people; and divorce.
How does job loss cause bankruptcy?
If you lose your job, and qualify for unemployment compensation, the amount of money you receive may be less than your regular paycheck. Sometimes, unemployment compensation runs out, or you do not qualify, and this means that your income is zero. While you are unemployed, you can file a Chapter 7 case, but you are prohibited from filing under Chapter 13 unless you have a regular source of income.
How does illness cause a person to need debt relief?
Many people are forced to seek relief from medical bills they cannot pay, because either they have no insurance, or their insurance did not pay all the bills. Medical bills can be devastating. A discharge in bankruptcy will eliminate all bills up to the date of filing the case. If you have a chronic illness, or have to get more medical treatment, it may be a good idea to wait until you are sure that you will have no more uninsured medical bills to pay, before you file a bankruptcy. Your bankruptcy lawyer can advise you on this.
What about bad luck?
Most people who work for a living have little or no savings. They need to spend their paycheck on current expenses, and there is very little to save. Any excess income is spent on entertainment and on buying consumer goods. If there is any break in the income, this is a disaster. Having a car break down, and missing work for a week because of it, can sometimes put a person behind in their bills so that it is impossible to catch up. Usually, it will take more than a week, though. Plant closings are an example of bad luck that is forcing many Americans to totally restructure their lives, and makes it impossible to meet their credit obligations. Loss of a job is a major cause of bankruptcy.
When should you file bankruptcy if you lose your job, fall ill, or are hit with bad luck?
It may be to your benefit, especially if you usually earn $45,000 yearly, or more, to file a Chapter 7 before you get back to work. This is because there is an income test in Chapter 7 cases, meaning you can have too much income to do a Chapter 7. This usually comes into play over $45,000, in urban areas like Chicago. If you are not a higher income person, this timing is not so important.
But, you may not want to not file a Chapter 7 case unless you are already back to work, for several reasons. First, your bad luck may not be at an end. If you are out of work, you probably don't have medical insurance. If you become ill after you have filed a bankruptcy, and run up a bunch of medical bills, you will have to pay them, because you will have used up your chance to do a bankruptcy already. Secondly, if you are not working, your money is short, and if you fall behind in your rent or utilities, or your car insurance lapses because you didn't pay it and you wreck your car, you will have already used up your 6 year chance to file a bankruptcy and start fresh. Thirdly, when you aren't working, no one can garnish your wages, and you probably don't have any savings that they can attach, so what is the point of doing a bankruptcy until you are back to work?
The reason for doing a bankruptcy is to get a start fresh. You cannot start fresh if you are still out of a job. Once you return to work, a bankruptcy can be filed in as little as one day, to protect you from creditors, so wait until you are back to work to worry about getting rid of your bills. You may run up some more before that happens!
What do I lose if I file bankruptcy?
Nothing if you hire a good lawyer. At GoodLawyer, we have never "lost" a house. Or a pension. Or life insurance proceeds.
Generally, you keep all your belongings, and get rid of your bills. No one comes to your house and takes anything. You keep your house, car, and clothing and furniture. No one does a bankruptcy to lose anything but their bills. If you have too much money in the bank, or your property is worth too much, or you have too much disposable income, we may advise you to pay your bills in installments under Chapter 13 in order to avoid losing anything.
You should have your list of assets ready for your lawyer to analyze before you file. Your lawyer should be able to tell you in advance if you would lose anything, or have too many assets to do a Chapter 7, or how to protect assets in a Chapter 13. We run our own computer program to determine that.
You probably will lose things if you don't do a bankruptcy, since bankruptcy can stop all creditor action against you. You will keep your belongings, car, house, pension and tools. State law may govern what you can keep, however, and your bankruptcy attorney may need a list of your major assets.
How do you keep property in bankruptcy?
In a bankruptcy, you can keep an interest in a house, car, and in money or household goods using exemptions.
For example, per-person property you can keep, if you are in title to it:
- Illinois: $15,000 in home equity or injury proceeds, $4,000 in personal property.
- Indiana: $15,000 in home equity, NO injury proceeds, Indiana workers comp cases (Indiana injuries only) $8,000 in property, no cash.
- Wisconsin: $75,000 in home equity total; $12,000 in personal property, $5,000 plus unused portion of $12,000 for vehicle, $5,000 for deposit accounts.
- All states: Pensions, IRA's, life insurance depending on who is beneficiary.
You don't have to close your checking account, unless you owe your bank money. You generally do not lose pensions, although you need specific advice from your lawyer on that. E.S.O.P plans are different from pensions.
Of course, if you would like to get rid of a car that doesn't run, or one you owe too much money on, you are free to give it back to the creditor. That is up to you. If you keep a house or car you owe money on, you have to keep making the payments.
You can also voluntarily pay creditors, such as your relatives, or credit unions, even if they have no collateral.
Each case is different, and that is another good reason why most attorneys want you to answer a lot of questions, and give them as much information as possible, so that they can advise you properly. A good lawyer will not file bankruptcy cases if you are going to "lose" anything. That is a big misconception about bankruptcy.
Is filing bankruptcy bad?
No. Owing money you can't pay is bad. Most people end up without money because of circumstances beyond their control. Bankruptcy simply adjusts the debt situation to 0 again. You start out even. You get a fresh start, while still keeping the necessities of life. But the prevailing attitude about bankruptcy is that is "bad."
Bankruptcy was so important to the Founding Fathers of the United States, that, when the U.S. Constitution was written in 1787, they directed Congress to make uniform bankruptcy laws. Article III, Section 8 of the United States Constitution states: "Congress shall make uniform laws relating to Bankruptcy."
There was little disagreement between the Founding Fathers of the United States of America, when it came to having a bankruptcy law. Freedom from debt was important, and so was the ability to start fresh. Bankruptcy is more fundamental to the United States of America than freedom of the press and freedom from unreasonable searches and seizures.
The origin of bankruptcy can be found in ancient traditions, like the Bible, Deuteronomy 15.1: "In the 7th year, each creditor shall release his debtors. This shall be known as The Lord's Release." In the Old Testament, it was the policy that a debt could exist only 6 years, and should be relaxed or forgiven in the seventh year. The purpose was to prevent damage to society by allowing a debt to live forever. The lender was cautioned thereby to lend only as much as the borrower could reasonably be expected to repay.
There are other Biblical references to debt, such as St. Paul's admonition in Romans 13:8; "Strive to owe no debt, except that debt that binds us to love one another." I have found nothing in any religion that states that owing money to another is "good." In the Koran, there is a prohibition against lending money at interest. In most Muslim countries today, Muslims borrow at no interest from "banks of the faithful."
Bankruptcy is not “Bad.” Bankruptcy is a fundamental right with origins deeply rooted in our history and heritages.
What will happen if you file bankruptcy?
People come into my office and ask, "What will happen to me if I file a bankruptcy?" No one ever came in, when I used to be a general practice attorney, and said, "What will happen to me if I get convicted for running a red light?" They never said, "What will happen to me if I sell my house?" But people who are being chased by bill collectors sometimes feel that they should not be able to get relief and that they will be punished if they get a fresh start. They do not realize that a big part of bankruptcy laws is forgiveness.
Nothing will "happen" to you if you file a bankruptcy. You won't suddenly become rich and famous, or popular, or beautiful or handsome, and, on the other hand, you won't suddenly be miserable and an outcast. One out of every 22 Illinois families will file for some type of bankruptcy relief, on the average, and in some states, the average is higher.
So, if you have problems with bills, getting the proper advice from a bankruptcy attorney as to whether or not some type of bankruptcy relief would make your life better, you should not be looked on as bad. You should think of it as provision in the Federal laws that was put there by Congress to help people get out of debt.
How much does bankruptcy cost?
A lot less than paying debt that you can't pay. Every lawyer charges exactly the same for Chapter 13, so don't bother shopping for fees for Chapter 13. Why? In almost every court, the court rules provide for a standard fee for all services. So, it's not the fee that you use to pick out an attorney.
Same with Chapter 7. Some people think everyone with a law license is the same. That's why the jails are full. Lots of people who don't know how to pick a decent attorney. People who file bankruptcy often have no confidence in themselves or their family or their budgets, and panic! They think, "I have to pay a big fee all at once and I have no money."
If you panic, you might call every lawyer who advertises bankruptcy and say "How much is a bankruptcy"? If you actually get an answer to that, here is who you might probably be are talking to:
A lawyer who got fired or could not work with anyone so he paid $500 for a website design. He rents a desk in an office center, and has no employees, works from his cell phone, returns his calls you leave on voice mail while he is driving from traffic court to a real estate closing to a bankruptcy court meeting, the only 3 cases he has this week. "I will do your case for $800 come on in," he says. You say, "Don't you want to know anything about me or what is involved before you tell me $800?" He says, "No, come on in, bring your money."
Anyway, he then tells you that instead of $800, because you have a house and car, he meant $800 to file, plus the $335 court cost, and there will be additional costs if "anything goes wrong".
"What do you mean, if anything goes wrong?" And lawyers who don’t know what they are doing make cases go wrong all the time. How? By not using exemptions properly, costing you your tax refund, bank balances, personal property, and even your house. But, the bankruptcy only cost you $800, so at least the bankruptcy is cheap.
The truth is, most anyone can come up with $900 or $1000 to put down on a Chapter 7, and pay the rest over time. Anyone can come up with $335 to file a Chapter 13, and pay the rest with their Chapter 13 payment.
What is the real price difference between bankruptcy lawyers?
Not much. I have found that there is very little difference in attorney's fees. You can't save more than a couple hundred dollars between lawyers' fees for the same type of case. Some people like cheap doctors, and some people like cheap food. Some people pick attorneys by a $100 difference in price, not realizing that one deal your attorney makes can save or cost you thousands.
So, the cheapest lawyer in town is not necessarily the best. In other words, go for experience, not price, because there is not much difference in fees for consumer bankruptcies, but there is a big difference in the quality of the advice and service.
For instance, let's say that 5 years later, a bill collector calls and says you left him off your petition, and he wants to be paid. Will you be able to call your attorney who filed your Chapter 7 for advice, or will the telephone be disconnected? If you chose GoodLawyer, yes you can. All your records are electronic. No voice mail either.
But what if I cannot afford the fee right now?
GoodLawyer has a plan for everyone. We represents people on Social Security with low income, and people making over $100,000 a year. Anyone quoting the same fee for any case, on the phone, may be engaging in "bait and switch" tactics.
Now, usually, Chapter 7 fees can be paid in installments of as low as $100 a month. Chapter 13 Plans including attorney fees are as low as $95 biweekly. If you can't afford $100 or $200 a month, you may have to ask friends or family to help you out. In my opinion, anyone "shopping for fees" for a bankruptcy attorney, is not thinking clearly. If you can clear $10,000 in debt, tax-free for $1500, it is a bargain. 10 payments of $150 or even $200 is a bargain.
Chapter 13 cases are even more of a bargain. In almost every state, the attorney fee is exactly the same. Most Chapter 13 cases get filed "no money down", because it's a repayment plan. Your attorney gets paid from your Chapter 13 payment, which takes care of attorney fees and all debt. Your Chapter 13 payment could be as low as $95 bi-weekly, or more depending on what debt you are paying back.
At GoodLawyer, you always get a free in office consultation because sometimes, in fact, regularly, we tell people NOT to file bankruptcy. That is why we have never "lost" a house or had any real "trouble".
If you really want the cheapest lawyer in town, then go to the one who tells you $500 on the phone, and pray that you will be happy! You get what you pay for. At GoodLawyer, we work with almost everyone, but $500 was a fee in 1975, not in 2020. Every year, one of the "cheap" bankruptcy lawyers gets indicted or closes up, so watch out who you think is giving you a "cheap price". The so-called "largest bankruptcy firm in the world", "Macey & Aleman Legal Helpers" closed up suddenly in 2013 and did not refund fees to clients, who then filed claims in its bankruptcy for the $1,400 or whatever fee they lost when the place shut its doors.
The real cost of a bankruptcy might be getting bad advice or bad representation by your attorney. The attorney's fee doesn't matter, since you can't save much from one attorney to another.
What is the difference between GoodLawyer and those other firms?
GoodLawyer is the largest filer of bankruptcies in Illinois, Indiana, and Wisconsin, and you will generally find that the largest law firms probably have the happiest clients, and about the same fees, when you get done, as the "all-by-myself" attorneys. Lawyers that claim to be "cheap" can often end up costing you more! Beware of "cheap fee quotes on the phone".
GoodLawyer has tens-of-thousands of 5-star reviews. “Tremendous,” “Professional,” “an astonishing experience.” Is how GoodLawyer clients have described their time with GoodLawyer. Why? GoodLawyer is almost always open. We have an app to give your 24/7 access to your case online. GoodLawyer offers virtual appointments and filing, making filing faster and easier for you. We have over 500 years of combined experience in practice and we produce our own CLE to stay up-to-date on changes in the laws.
At GoodLawyer, we get a lot of people who have been elsewhere and are unhappy. Some people focus on the attorney's fee in choosing an attorney. My office gets calls from about a hundred people a year who have had Chapter 13 or Chapter 7 cases goofed up because they tried to save $100 on attorney fees. Remember, in most Chapter 13 cases, you are saving a lot of money on interest, so the cost is less than paying the creditors at their contract rate of interest. However, Chapter 7 cases are usually cheaper than Chapter 13 cases in terms of total cost. Many "cheap" lawyers don't know the difference between Chapter 7 and Chapter 13, so if you go there, you won't know either.
If I am married, can I file a bankruptcy without my husband or wife?
Yes. Just because you are married, you are not required to file a joint case. We do have to know the household income, and if spouses are keeping separate income and expenses. But one can file without the other.
It is always a good idea to see the bankruptcy lawyer with your spouse. Then you won't have to go home and answer your spouse's questions. Sometimes we recommend that one spouse NOT file, or that one file Chapter 7, and the other file Chapter 13. Many people have debts that they had before the marriage. A spouse is not liable for the other spouse's pre-marital debts.
Domestic support obligations, attorney fees to the other spouse in most cases, and guardian ad litem fees, and property settlement obligations, are not dischargeable in Chapter 7. In Chapter 13, domestic support obligations must be paid, and you can pay arrears ahead of other creditors. Also, in Chapter 13, property settlement obligations that cannot be discharged in Chapter 7 may be discharged. So, you need an experienced attorney if you have marital debt issues.
Your filing does not affect the other spouse's obligation to pay debts they are liable on. In community property states, like Wisconsin, your bankruptcy leaves your spouse with any debt incurred during the marriage, unless the spouse also files.
If you ran up the bills during the marriage, even though your spouse did not sign for the debt, or even know about it, your creditors may be able to collect from your spouse. Many states have "family expense" laws that make one spouse responsible for the debts of another if the debts were incurred for family purposes. The theory is that each spouse owes a duty to immediate family members to support them. Food, clothing, rent, medical bills and household items can be the responsibility of the other spouse.
Therefore, while you can file a case alone, you may have to take into consideration both your spouse's income, even if you keep your income and expenses separately, and any liability your spouse may have for your debts. You can protect your spouse from this liability by a joint filing, or, you can pay the debts that your spouse is liable for in a Chapter 13. Then, while you make the Chapter 13 payment, no creditor can bother your spouse. The same theory applies to co-signed debts.
Sometimes one spouse will send the other one in, because they don't want to pay the other's bills. Then, instead of sending money to bill collectors, you can send your money to your own family. It makes for a happier marriage.
So Yes, you can file without your spouse and in some circumstances it is preferable.
Will my employer find out if you file bankruptcy?
Your employer need not know, and probably doesn't care anyway. A lot of bosses send their employees to GoodLawyer and some even pay for their bankruptcy cases.
We represent police, FBI, sheriff's deputies, and people who need to get their debt cleared up so they can get security clearance. Most employers recognize that their employees are better off filing Chapter 7 or 13 and getting control over their debt.
Of course, nobody wants their friends, co-workers, or neighbors knowing their financial business. People will discuss their love life, their personal habits, and gossip about just about anything, but they will not discuss their personal finances with each other. Even within families, money is something that people are very secretive about.
Realize that your problems are probably shared by your co-workers. Ask them if they know a good bankruptcy lawyer! You'll be surprised at how many have already filed!
In Chapter 13 cases, employers have to know so they can deduct your Chapter 13 payment from your paycheck and send it to your Trustee to distribute among your creditors. However, if your employer is small, or you have some reason for secrecy, you can pay direct without a payroll deduction.
Some employers will refer their employees to bankruptcy lawyers when creditors start bugging them at work, so that the employees can get rid of their financial problems and concentrate on the job.
If you are really worried about whether or not your employer will "find out", you could always go to personnel and ask, hypothetically, if filing any kind of bankruptcy would have any effect on your job. I recommend that anyone dealing with financial matters discuss it with their employer if they think the employer would care. Then you will know before you even see a bankruptcy attorney, and will feel more comfortable.
So, don't worry about who "knows" if you file a bankruptcy case. It is not as big a deal as it used to be.
If your creditors are calling you at work, your employer may be very happy to know that you have gotten them off your back by filing a bankruptcy. The filing of a bankruptcy case automatically stops all creditor action, and then no one is going to call you on the job, bug your employer, send out wage assignments or file lawsuits or send the sheriff out to deliver lawsuit papers to you on your job.
We represent a lot of employees of big banks, including some who have charge cards issued by the bank they work for. It used to be common in the employment manual for these banks to see a statement to the effect that filing a bankruptcy by an employee was cause for dismissal. This is not true today, and in fact, that is illegal.
Does Chapter 7 or 13 Bankruptcy “ruin my credit?”
You don't have good credit, you have good debt! Bankruptcy does not generally ruin your credit more than it is already. Many people say, "I'm current on all my cards. I have good credit." Then it comes out that they have been getting cash advances on one card and using that money to pay the other charge cards. That is borrowing money when you don't have the ability to repay it. If you are doing that, you don't have good credit.
Credit is the ability to borrow money. Lenders look at several things about you if you want to borrow money. First, they look at your ability to repay it. If you have a lot of bills to pay now, you probably can't afford to borrow more, because you won't be able to repay it.
Second, they look at your past history of repayment. If you have been reported slow-pay, or have lawsuits, garnishments or repossessions, you already have ruined your credit history. Getting rid of your bills in a bankruptcy may actually improve your situation. You will have no bills to pay, or maybe just one or two. You will then be able to try to save a little money. Also, you can't file another bankruptcy until six years have passed. Many lenders will allow you to re-establish credit, because now you have a better ability to repay.
The third main factor that a lender looks at is the security or collateral given for the loan. You may need more money down than in the past.
Studies by Harvard and the Federal Reserve show that people who file bankruptcy and generally in a better position than those who remain in debt. The Federal Reserve said:
“[people who file bankruptcy] experience a sharp boost in their credit score after bankruptcy, whereas credit scores recover at a much slower pace for individuals who remain [in debt]. The credit score of bankrupt individuals exceeds the credit score of insolvent individuals by 40-80 points. In addition, those who go bankrupt open new unsecured accounts post-bankruptcy at a higher rate (by around 15 percentage points) than those who don’t file bankruptcy, while the number of inquiries is very similar across the two groups. This indicates a difference in access to credit, not demand for credit. [the Federal reserve] conclude[ed] from this evidence that the ability to file for Chapter 7 bankruptcy is associated with better access to credit, and while both insolvency and bankruptcy are forms of default, the debt discharge associated with bankruptcy leaves filers in a better financial position than individuals who become insolvent in similar circumstances.”
If you are contemplating bankruptcy, you have probably received charge cards in the mail, and bought things with no money down. After a bankruptcy, that easy credit will be harder to obtain. You can get a charge card by giving a $400 or more savings account with the issuing bank, so that if you do not pay the charge card, they can deduct from your bank account.
Many clients are able to buy a home within a few years after filing a bankruptcy or even during a bankruptcy. How do I know? Every week an old client calls me and asks for proof that their bankruptcy got rid of their old bills, so they can give it to their mortgage company. Mortgage companies want to know that people buying houses don't have creditors chasing them, because those creditors can put liens on the house. Also, if you have a lot of bills to pay, you probably can't afford house payments. Filing bankruptcy may be the first step to buying a house.
How do you know if you qualify for bankruptcy?
A lot of people want to know if they “qualify” for bankruptcy. They want to know, “When should I go see a lawyer?” Ask yourself this question: Is your debt over $7,000, not including a car or house? If you have $7,000 in debt and trouble paying your bills, you should contact us now to get your options.
Other questions you should ask are:
- Are you frequently late on your payments?
- Are you paying 20% interest on your debt?
- Do you buy necessary items like food or clothing on credit?
- Are you thinking about getting a loan to pay other loans?
If you answered yes to anyone of these questions, you likely qualify for a bankruptcy. These are all indicators that you have more money going out than coming in. You probably need a fresh start to eliminate unsecured creditors.
What if collection agencies are calling you? Or worse, someone has filed a lawsuit against you or your check is being garnished. You should immediately contact us to start your case. A chapter 7 can eliminate your debt or a chapter 13 will consolidate your debt into a payment you can afford. Both Chapter 7 and Chapter 13 stop collection and lawsuits.
Is your mortgage or rent always late? Other payments behind a month or more? All because you lost your income? You probably qualify for bankruptcy protection and need a fresh start to get rid of debt and start over.
What about savings? Do you have any? Are your balances not going down even though you make payments? Are you being turned down for credit? Many people file bankruptcy to help build savings. Studies show bankruptcy will actually increase your credit score, and people who file bankruptcy are likely to have better financial success in the future. Why? Because they got rid of their debt and started over.
Are you concerned you have assets and cannot file a bankruptcy? Most people with assets can still file a bankruptcy to eliminate their debts. Think you make too much money to get rid of your debt? Chapter 13 gives you interest free repayments on your debt. Better yet, if your creditor doesn’t file a claim in your case you will receive a discharge without repaying them.
Let’s do a hypothetical: Bill and Sally have been married for 20 years. Bill recently lost his job in middle management, and is now working at half his former salary, driving a limousine. Sally had an operation, and since there was no insurance, owes $8,000 in unpaid medical bills. To supplement Bill’s income, they have been using credit cards to pay for groceries and other expenses because Sally needed 8 weeks to recover from her operation. The balances on the credit cards are now $5000, because they used the cards to supplement their lost income. Sally returned to work, but because of the medical bills and increased credit card balances, They can't afford the credit card payments anymore. They want to know, do I qualify for bankruptcy.
Answer: Of course. Bill and Sally were hit with some bad luck. Bill lost his position in middle management and Sally’s operation forced her out of work for a month. A bankruptcy, either chapter 7 or 13, would benefit Bill and Sally because it will get rid of all their unsecured debt and they will be able to start saving now that Sally is back to work.
Does any of this sound familiar? If it does, you should contact right now to get your options.
Another Scenario: Same situation with Bill and Sally, but this time Bill and Sally are 6 months behind on the house. Bill and Sally received foreclosure paperwork and now they need to save the house.
Answer: Chapter 13 will stop the foreclosure and let Bill and Sally repay the past due amounts over time. Better yet, the unsecured debts will be paid interest-free. When the plan is complete Bill and Sally will likely have improved credit for making timely payment in their chapter 13, a MUCH BETTER budget, and no debt.
Can I file bankruptcy if I have a co-signer?
Talk to your co-signer. You had to have them guarantee that you would pay your loan, so they signed your loan papers. You may want to pay that loan to protect your co-signer. Your co-signer might say, "Go ahead and file Chapter 7 and I will pay this one off for you," or, "I filed bankruptcy myself, so don't worry, I already got rid of this debt."
You can also file Chapter 13 and pay a co-signed debt to protect your co-signer. You can file Chapter 7 and still pay the co-signed debt to protect the co-signer. Or, you can file either and let the co-signed decide what to do if the creditor goes after them on their guarantee.
Whenever a lender wants a co-signer, they don't trust the person that wants the loan. Therefore, someone has to agree that if the person who is getting the money does not pay, that the co-signer will make the debt good, and take up the payments.
If you are the person who signed to pay if your friend or relative didn't, you may complain if you get called upon to pay the loan that your friend or relative got. In fact, it may push you over the financial edge.
Therefore, if you have a lot of bills, and now have a problem because of a co-signer, you will want to include that co-signed loan in your list of bills when you come in for your first interview.
If you co-signed, you probably did not want to pay the other person's loan. In a Chapter 7, you will discharge your liability for the loan. In a Chapter 13, you can set up a special class for co-signer loans, and pay them or not pay them, as you wish.
If other people co-signed for you, you may want to protect them. In a Chapter 7, you will probably want to pay loans that other people co-signed for you on, so that you are protecting your co-signers. Just keep on paying those loans, despite your Chapter 7, if you want to protect your co-signers.
In a Chapter 13, if you want to protect your co-signers, you can set up a special class of creditors for co-signer loans, and propose to pay the co-signer loans ahead of other loans.
Here is a hypothetical: Tim works at the Post Office and has 3 co-signers for his credit union loan. The credit union is taking $200 per paycheck out of his check, and Tim has a car payment of $329 per month, and a bunch of other bills, so he needs debt relief.
The GoodLawyer Chapter 7 or 13 Solution: Tim files a Chapter 13 to pay his car and co-signer loan 100%, and can pay his other creditors after the car and co-signer loan are paid. He can also just get rid of all his debt in a Chapter 7, but continue paying the car loan and credit union loan. He will "reaffirm" the car loan, but will not sign a reaffirmation on the credit union loan. He will pay the regular payment on the credit union loan, re-authorizing his payroll deduction.
Can I file bankruptcy on bills in someone else’s name?
Several interesting complications arise when people mix up their finances with others. You must disclose all such debts or assets.
When you have asked someone else to run up a bill, and promised to pay for it, you are a stranger to the creditor. The creditor knows of the existence of the person who got the credit, but has no idea of your promise. Therefore, you are not a debtor, except for your debt to the other person. The creditor has no obligation or demand on you, and therefore, the debt cannot be dealt with by your Chapter 7 or Chapter 13. You should list your obligation to the other person, however.
In a Chapter 7, you can discharge your promise or debt to repay the other person's loan, by simply listing the person on your petition. In a Chapter 13, especially if you are in possession of property that was purchased by the other person, you can deal with that property by proposing to pay the other person for it. Of course, if that person does not use the money to pay the creditor they bought it from, you may find that you will lose the property anyway, since the creditor retains its security interest in the property until it is paid.
Sometimes people transfer property to another person, or give another person money to buy something for them, either because they have no ability to borrow themselves, or because they wish to hide their ownership. This must be disclosed on your bankruptcy petition.
Often, it makes no difference if you disclose such transfers, but it is a crime to conceal your ownership in property held in another's name when you are asking for bankruptcy relief. Honesty is the policy. You are a stranger to the creditor, but since you supplied the money to the person who bought it, the other person may owe you money, and if the other person is honest, will say that it is not his property, but yours. This most often arises with cars, where a person is driving and paying insurance on a car, but the plates, title and loan are in a relative's name. Most likely, we cannot help you with that situation either, but it must be disclosed anyway.