In most cases, you cannot be held responsible for another person’s debt in bankruptcy unless you signed as a responsible party. This often applies to a spouse, but can also apply to other people such as an authorized user on a credit card or a joint owner of a loan account. However, the rules are more complicated if you have a business, where it is possible for a creditor to pierce the corporate veil and impose liability on shareholders who have neglected legal formalities like meetings or required filings, or where they have intermingled their funds with that of the corporation or have used it as an extension of themselves.
You may have a contractual obligation to pay someone else’s debt under a power of attorney arrangement, or you might be a guarantor on a loan or other credit agreement. It is important to review all of your credit reports to ensure that you are aware of all obligations you might be liable for under these arrangements.
When a person files for bankruptcy, they must file forms with the court and creditors listing all of their assets and debts. Assets are sold for cash to repay creditors, though some property, such as work tools, a personal vehicle or equity in a home, may be exempt from sale.
A debtor is usually given a “discharge” from liability for most dischargeable debts shortly after their bankruptcy petition is filed. This does not prevent creditors from attempting to collect on the debts, but it protects the debtor’s credit report from being reported as outstanding.
Debts secured by a mortgage or other real estate, as well as certain other credit accounts, such as jewelry and furniture, are usually not discharged, even though the debtor receives a discharge from the debt. In these situations, a creditor can repossess the property.
Some debts, such as student loans and some tax debts, are not typically dischargeable in bankruptcy. Some debts that have been incurred through fraud can be discharged, but this is not common.
If you are concerned about being liable for someone else’s debts, you should speak with a qualified bankruptcy lawyer. A qualified attorney can help you to determine if a particular debt is dischargeable in bankruptcy and how the bankruptcy process might affect your ability to repay it. A skilled lawyer can also work with you to create a repayment plan that will allow you to keep your assets and still repay the debt. Contact a bankruptcy attorney in your area for more information.
