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Joint Accounts and Bankruptcy

Vivona Pandurangi, PLC Sept. 21, 2023

Frustrated wife looking at financial document and husband consoling herFiling for bankruptcy is a serious step toward a more solid financial future. For many people, bankruptcy may be the only option to get out from under crushing debt. However, in some cases, the person who files for bankruptcy may not be the only one affected by the process. People often overlook the potential impact of bankruptcy on their joint accounts and, more specifically, on the joint accountholders and cosigners, which can lead to unwanted consequences.  

With many years of experience walking clients through their bankruptcy concerns, our attorneys at Vivona Pandurangi, PLC can explain how a bankruptcy filing can affect your joint accounts. The law firm has offices in Falls Church and Alexandria but serves clients in other parts of Virginia, including Fairfax, Manassas, Arlington, and throughout Prince William, Arlington, Fairfax, and Loudon counties.  

What Qualifies as a Joint Account?

A joint account has two or more owners, also known as holders. Typically, these holders have the right to deposit, withdraw, and manage the funds in the account. In some cases, one owner may be considered the primary holder of the account. The term “joint holder” should not be confused with the term “authorized user.” Authorized users merely have permission to use someone else’s account but, unlike joint holders, they do not have legal accountability when it comes to paying the bill.  

In joint accounts, all holders of these accounts are equally liable for the debt. For this reason, bankruptcy filers must also list any joint accounts in their petition. When a petition for bankruptcy is filed, the filer’s obligation to pay discharged debt is eliminated. However, the bankruptcy filing does not eliminate the obligation of the joint account holder or cosigner.  

Protections for Joint Accountholders and Cosigners in Chapter 7 Bankruptcy

When a debtor files for bankruptcy under Chapter 7, the court puts in place an automatic stay, which protects the debtor from collection efforts and creditor harassment. However, this type of bankruptcy does not provide any protection to joint accountholders and cosigners. In fact, since creditors cannot pursue debt from the filer due to the automatic stay, they will most likely attempt to collect the debt through the joint holder or cosigner.  

If you are considering filing for bankruptcy but have joint accounts, or you are a joint account holder worried about how the other joint holder’s bankruptcy filing may affect you, you might want to speak with an attorney. Our attorneys at Vivona Pandurangi, PLC can advise you on the appropriate steps to take before filing for bankruptcy to avoid various complications that may arise in your case.  

Protections for Joint Accountholders and Cosigners in Chapter 13 Bankruptcy

Unlike Chapter 7 bankruptcy, Chapter 13 allows filers to protect joint holders and cosigners of their accounts as long as they are paying off their debt in full under the repayment plan. In addition to an automatic stay, the court also puts in place a codebtor stay, which extends the protections of the automatic stay to joint accountholders and cosigners on all consumer debts.  

Creditors cannot collect debt from joint accountholders and cosigners as long as the codebtor stay remains effective. However, in certain instances, creditors may be able to ask the court to lift the codebtor's stay. This may occur if any of the following is true:  

  • The repayment plan will not pay the cosigned debt in full. 

  • The joint account holder or cosigner received the primary benefit from the loan. 

  • The continuation of the codebtor's stay would cause irreparable harm to the creditor’s interest.

You might want to consult with an attorney to understand the impact of bankruptcy on joint accountholders and cosigners and find out how to mitigate the potential risks and complications before a petition for bankruptcy is filed.  

Ready to Speak With an Attorney? Reach Out Today. 

Our attorney at Vivona Pandurangi, PLC can help you understand what will happen to your spouse or family member as joint accountholders and cosigners when you file for bankruptcy. We can also help you determine the most optimal route for you to work through your debt problems. Reach out to our office in Falls Church or Alexandria to set up a free case evaluation.