Tag Archives: co-signers

Are My Co-Signers Affected By Bankruptcy?

Your Chapter 7 or Chapter 13 bankruptcy filing will not negatively affect the credit reports of any co-signers on your debt, but neither it will discharge their joint liability for the debt.

Click here to read more about how co-signers are affected by bankruptcy on the new Michigan bankruptcy blog of Michigan bankruptcy attorney The Hilla Law Firm, PLLC.

If you are a southeast Michigan resident and are interested in discussing your options for bankruptcy, please feel free to contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

What Happens If I Declare Bankruptcy and am Listed as a Joint Account-Holder on Someone Else’s Bank Account?

Several times in recent weeks, individuals I’ve counseled wishing to declare bankruptcy have revealed to me that, in addition to their personal bank accounts, they are also listed as “joint holders” on someone else’s bank accounts, such as an elderly relative, sibling, or friend. (For the sake of clarity, I am not discussing joint bank accounts between married individuals in this post.) Particularly in the case of elderly parents, this is often for convenience or estate-planning purposes, as the parent anticipates the possibility that, at some point, they may be physically unable to gain access to their needed funds. In such cases, the jointly named potential bankruptcy filer may have contributed little or no funds to the account at all; they are simply listed as a user in case their parent needs assistance with finance-related daily activities. They own 0% of the funds in the accounts, yet they are listed as an “owner” of the account for all general purposes. This raises a serious question when they need financial assistance themselves, in the form of bankruptcy: will those funds be protected from the court-appointed  bankruptcy trustee, whose job it is to liquidate all available assets for the benefit of the creditors whose debts are to be discharged in the bankruptcy?

In Michigan, where I practice, this question is framed with a point of state law: MCL 487.703  holds that there is a presumption of joint ownership of any funds in a bank account with joint users listed in this way. Although the bankruptcy process itself is governed by Federal law, certain underlying considerations in the process are dependent upon the laws of the state in which the bankruptcy is being filed. This is such a consideration.

What that means, then, is that, in Michigan, if you are listed on someone’s bank account and that account has, for example, $10,000 of that person’s money in it, Michigan state law (and the Eastern and Western Federal District Courts along with it) will presume that $5,000 of that money belongs to you.

The potential effects of that presumption are serious and should certainly be taken into consideration when deciding to file bankruptcy. However, the presumption of joint ownership that I’ve described is rebuttable, which means that, if an individual has evidence that proves that they don’t own the funds in the account, the bankruptcy court should leave the funds unaffected.

Depending on the amount of money involved (bankruptcy trustees earn a percentage of the funds liquidated for creditors’ benefit), this may be easier to accomplish or more difficult to accomplish. Depending on the specifics of each individual situation, there are different ways of listing the joint accounts in the bankruptcy petition to foreclose the possibility that the trustee will become interested in liquidating an account that does not actually belong to the filing debtor. It may even be preferable to have the accounts closed prior to the filing of the bankruptcy, though this is a delicate operation and should certainly not be considered if any percentage of the funds do indeed belong to the filing debtor.

One thing is clear, in any case: all such accounts should be disclosed to your bankruptcy attorney who will, in turn, make the correct decision as to how best to disclose and list them in the bankruptcy petition. Such situations are delicate but are also easily managed by a knowledgeable attorney. Complications such as this often trip up individuals opting to file for bankruptcy without the use of an attorney and are a strong example of how something that seems simple and obvious can have serious ramifications when attempted without qualified legal advice.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

Am I Responsible for My Fiancee’s Debt After Marriage?

It may seem cold to suggest that couples considering marriage examine what their mutual debt-load will be after they marry as part of the process, but it is a fact that the debt belonging to one partner will affect the other throughout and, if it comes to it, after marriage. While I am not a family law attorney and do not handle divorce cases, I do encounter the issues created by pre-marital debt quite often in my work as a bankruptcy attorney. Both married couples and couples considering both marriage and divorce have many questions about the debt accrued by each partner individually, before and during the marriage, and by the couple as a unit during the marriage. For those in the not-yet-married category, by far the most common question I am asked is whether a partner, through marriage, will become legally liable for his or her partner’s pre-marital debt after marriage.

Michigan, unlike common property states like California, is an  equitable distribution state, which, in terms of assets belonging to marital partners, means, for divorce purposes, that a judge will decide what assets belong to each divorcing partner equitably. Typically, under this system, property belonging to a marital property prior to the marriage is held to belong wholly to that partner after the marriage, even if the partners cohabitated before marrying. There are many caveats and special circumstances altering this rule, but, in Michigan, this is the case generally.

Likewise, with regard to pre-marital debt, debts incurred wholly by one partner prior to the marriage will belong to that partner after divorce. Debts which are incurred during the course of the marriage, however, are joint debts, generally, regardless of whose name is attached to it. In Michigan, these debts will, like joint-assets, be divided equitably by the court according on the basis of such considerations as the length of marriage, child support requirements, and the level of financial contribution to the marriage by each partner, among many others.

Generally, then, a partner considering marriage needn’t worry about shouldering his or her fiancee’s pre-marital debt (unless they contribute to it or work to detract from it during the course of the marriage). However, that does not mean that there are no further implications of that debt upon the health of the marriage. Struggling with an overabundance of debt is the reason that many marriages fail. If one partner, prior to marriage, is overwhelmed by debt, it is possible that filing for bankruptcy prior to marrying will allow not only that partner to move forward and reconstruct his or her financial health but will also allow the marriage to get started out on solid footing.

A new marriage is by definition a shaky, uncertain thing. If you are a southeast Michigan resident considering marrying but are concerned about the effect your debt-load may have on your future spouse or your marriage in general, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

How Will My Bankruptcy Filing Affect the Co-Signers on My Loans?

It is inevitable that filing for bankruptcy can have an impact beyond the sphere of our own personal finances. Many people (including myself) have co-signed loans for others, had loans co-signed by others, or both. Frequently, those who have co-signed loans for us are our family or friends. Likewise, those we have co-signed for are frequently personal acquaintances. In either case, the filing of a bankruptcy petition can ripple across this financial support network, and rarely is it likely to endear us to one another.

To read more about Michigan bankruptcy and its effect upon your co-debtors, click here to visit our new blog at The Hilla Law Firm, PLLC.