What Is a Codebtor in Bankruptcy?

You'll list anyone responsible for paying your debt in your bankruptcy paperwork.

A codebtor is someone who must pay off a debt owed by the  debtor  (the person who files for  bankruptcy) if the debtor fails to do so. A  Chapter 7 bankruptcy  will not discharge (wipe out) a codebtor’s responsibility to pay the debt. The codebtor will remain liable and subject to collection efforts after the bankruptcy. By contrast, in most cases, a codebtor will not be responsible for paying the debt while the debtor pays into a three- to five-year repayment plan in a  Chapter 13 bankruptcy. (To learn more, read  Will Your Cosigner Be Liable for Debt if You File for Bankruptcy?)

When you file for bankruptcy, you must complete a packet of official forms and list codebtors on form  Schedule H: Your Codebtors (individuals)  of the  bankruptcy petition. Here are examples of different types of codebtors.

Someone cosigns an account for you.  If you don’t have enough income or a high enough credit score to make a purchase on credit—such as a car—another person, called a cosigner, might agree to help you open the account. Because a cosigner is also responsible for the debt, you’ll list that person on  Schedule H.

Your non-filing spouse owes a debt along with you.  When spouses apply for credit together—such as to take out a mortgage or open a credit card—both spouses become equally responsible for paying off the debt. If only one spouse files for bankruptcy, but the spouses are both responsible for a mutual debt, the debtor (the filing spouse) must list the non-filing spouse on  Schedule H  of the bankruptcy petition.

You and your spouse lived in a community property state during the last eight years.  If you incur debt while married and residing in a community property state, each of you will e responsible for the obligation. You’ll complete a special section addressing this issue on  Schedule H. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington, and Wisconsin.

Someone personally guaranteed a business debt.  Many companies won’t give credit to a new or small business unless an individual agrees to be responsible—or “personally guarantee”—the debt. This requirement protects the creditor if the company can’t pay or shuts down. In a  business bankruptcy, the debtor must list all individuals or other companies that agreed to be jointly responsible for the  business debt  on  Schedule H: Your Codebtors (non-individuals).

(If you’d like information about completing the form, read  Completing Bankruptcy's Schedule H: Your Codebtors.)

 

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