What Happens to Joint Debts in Tennessee Bankruptcy Cases?

When individuals face financial difficulties and decide to file for bankruptcy in Tennessee, joint debts can complicate the situation. Understanding what happens to these debts during the bankruptcy process is essential for both the debtor and any co-borrowers involved.

In Tennessee, the treatment of joint debts largely depends on the type of bankruptcy filed—Chapter 7 or Chapter 13. Each option offers different outcomes for joint debts.

Chapter 7 Bankruptcy and Joint Debts

Chapter 7 bankruptcy is known as liquidation bankruptcy, where the debtor’s non-exempt assets may be sold to repay creditors. However, when it comes to joint debts, it’s important to note that while the bankruptcy will discharge the debtor's responsibility for the debt, it does not eliminate the obligation for the co-borrower.

For example, if both spouses are responsible for a credit card debt and one spouse files for Chapter 7 bankruptcy, that spouse will no longer be liable for the debt. The creditor can still pursue the other spouse for the full amount owed. This can create tension between couples and may require careful financial planning.

Chapter 13 Bankruptcy and Joint Debts

Chapter 13 bankruptcy, often referred to as reorganization bankruptcy, allows individuals to keep their property while repaying debts over a three to five-year plan. In this case, joint debts are treated differently. The Chapter 13 plan may include provisions for joint debts, allowing the repayment to occur over time while the co-borrower’s liability remains intact.

With Chapter 13, the responsible debtor can propose a repayment plan that addresses joint debts, potentially extending the time frame for repayment and possibly reducing the total amount owed through negotiation with creditors. This can offer joint borrowers more financial flexibility and a path to retain their shared assets, such as the family home.

Impact on Co-Borrowers

It’s crucial for co-borrowers to understand that bankruptcy can have lasting effects on credit scores. While a filing may relieve one spouse of their liability, it does not shield the other co-borrower from consequences such as collection efforts, impact on credit reports, or potential lawsuits from creditors.

This highlights the importance of communicating with co-borrowers about the bankruptcy process and its implications. In some cases, individuals may choose to negotiate with creditors before filing for bankruptcy to reduce overall debt or explore alternatives to bankruptcy that could mitigate damage to both parties' financial situations.

Conclusion

In Tennessee, navigating joint debts in bankruptcy cases requires understanding the type of bankruptcy being filed and its impact on both the debtor and co-borrowers. Whether opting for Chapter 7 or Chapter 13 bankruptcy, seeking advice from a qualified bankruptcy attorney can help individuals make informed decisions that protect their financial futures while addressing the nuances of joint debt obligations.