How Bankruptcy Impacts Co-Signers and Joint Accounts
Dec. 4, 2025
Bankruptcy is designed to provide relief from overwhelming debt. While it primarily affects the person who files for relief, the ripple effects can extend to others, such as co-signers and joint account holders. Understanding how shared obligations are handled when one party files for bankruptcy is key to preventing unexpected liability or damage to credit.
The decision to file for bankruptcy is a serious one, especially when co-signers or joint account holders are involved. At The Law Offices of David K. Blazek, P.C., located in Tampa, Florida,we strive to help individuals and families understand how filing for bankruptcy can impact co-signers and joint accounts and explore their options to protect the interests of all parties tied to shared debt or accounts.
How Co-Signers Can Be Affected by Bankruptcy
When a borrower files for bankruptcy, a co-signer’s liability often remains intact even after the borrower receives a discharge. If the borrower files under Chapter 7, the automatic stay protects the borrower, but generally doesn’t protect the co-signer.
Under Chapter 13, the co-debtor stay may offer protection for a co-signer for certain types of consumer debts for a limited period. However, the discharge of the borrower’s personal obligation doesn’t erase the co-signer’s legal obligation.
This means that even though the borrower may no longer be legally required to pay a debt, the creditor can pursue the co-signer for the full amount.
Why Debt Isn't Automatically Discharged for Co-Signers
Several core principles explain why co-signers aren’t automatically relieved of their obligation. The legal obligation a co-signer takes on is independent of the borrower’s filing; when co-signing, a person typically agrees to “joint and several liability.”
The bankruptcy discharge removes the debtor’s personal liability, but under Section 524(e) of the U.S. Bankruptcy Code, it “doesn’t affect the liability of any other entity … for such debt.” Furthermore, for secured debt, the lender may exercise their rights against collateral and then pursue any remaining balance, which can fall on the co-signer.
Co-signers also face legal liability, as the creditor may sue them for the outstanding balance. This can result in an unexpected financial burden, as the co-signer may find themselves obligated to pay a loan they expected the borrower to handle, dramatically altering their financial plans.
Since the co-signer remains liable, the effects can be significant. Their credit score can be damaged if the borrower stops paying and the co-signer fails to step in, leading to delinquencies and collections appearing on their credit report.
How Joint Accounts Are Affected During Bankruptcy
While co-signers concern loans and creditor liability, joint accounts involve shared access and shared responsibility for debts and overdrafts. Filing for bankruptcy can still significantly affect these accounts.
When two or more parties hold a joint bank or credit account, each has equal rights to the funds and, typically, equal responsibility for negative balances or overdrafts. If one account holder becomes insolvent and files for bankruptcy, the account’s shared nature may expose the other holder(s) to unexpected obligations or complications. When the debtor files for bankruptcy:
The debtor’s assets become part of the bankruptcy estate. If the joint account funds are considered the debtor’s property, the bankruptcy trustee might claim an interest in that account, even though it’s shared.
The non-filing joint account holder may see funds frozen or held up until the trustee determines whether those funds belong in part to the estate.
If the joint account is used for credit (like a joint credit card), the non-filing holder may become solely liable for the entire remaining balance if the filing party discharges their portion through bankruptcy.
In some cases, creditors may attempt to collect from the non-filing account holder if the filing party stops paying, treating them as if they were a co-signer or guarantor of sorts.
While co-signing and joint accounts differ, bankruptcy can significantly impact both, potentially creating unexpected liabilities and complications for the non-filing party.
Steps to Take to Minimize Co-Signer Liability
There are steps both borrowers (who may file bankruptcy) and co-signers can take to attempt to reduce risk. These include the following:
Maintain communication: If the borrower intends to file bankruptcy, the co-signer should be informed, and both parties should discuss how to handle the loan.
Reaffirm the debt: In cases involving Chapter 7 bankruptcy, the borrower may choose to reaffirm the debt to protect the co-signer. However, reaffirming means the borrower gives up the opportunity for that specific debt to be discharged.
Refinance the loan: The borrower and co-signer may be able to refinance the loan without the co-signer or asking the lender to release the co-signer’s liability.
Monitor all accounts: The co-signer should proactively monitor the account, tracking payments and the status of the loan, as late payments or defaults can trigger their liability.
Differences Between Bankruptcy Chapters for Co-Signers and Joint Account Holders
In Chapter 7 bankruptcy, the debtor’s qualifying debts are discharged, but this discharge doesn’t eliminate the co-signer’s obligation. The automatic stay protects the filer, but generally doesn’t apply to the co-signer unless specific conditions are met. For joint account holders, the trustee may claim the debtor’s interest in a shared account, potentially exposing them to debts associated with that joint account.
In Chapter 13 bankruptcy, the debtor repays their debts under a court-approved plan over three to five years. A statutory “co-debtor stay” can protect co-signers of consumer debts (but not business debts) from collection efforts while the plan is in place.
While joint account holders still need to evaluate their exposure, the protection for non-filers under Chapter 13 may be stronger in some cases, though it’s not automatic. If the debtor’s plan proposes paying the co-signed debt in full, it may shield the co-signer from post-discharge collection on that specific debt.
Therefore, if a borrower files for Chapter 7, the co-signer will likely remain exposed to full liability, and joint account funds may be vulnerable. If the borrower files for Chapter 13 and the debt is consumer-based, a co-signer may benefit from stronger protection but must carefully review the plan terms and the secured versus unsecured status of the debt.
Key Considerations Before Becoming a Co-Signer or Opening Joint Accounts
Given the potential risks, if you are asked to co-sign a loan or open a joint account, you should proceed with caution and ask questions before agreeing. For prospective co-signers, we recommend you to consider the following:
Evaluate the borrower’s financial discipline and ability to repay the debt.
Understand fully the loan terms and what the co-signer’s liability will be.
Ask whether there is an option to release the co-signer after a set period or refinancing.
Clarify what will happen if the borrower eventually files bankruptcy.
For joint account holders, maintain as much communication with the borrower as possible and understand your rights based on which chapter they file for. Some points you should consider include the following:
Know how account funds will be treated if one holder declares bankruptcy.
Consider whether joint access is necessary or whether it might be safer to maintain separate accounts and grant access when needed.
Keep clear records of who deposits what and how much each person owns in the shared account—this may help if funds are claimed by a bankruptcy estate.
Openly discuss the risks with your family or friends before co-signing or sharing an account. Consider putting agreements in writing about how shared accounts or co-signed debts will be managed and what happens if one party faces financial trouble. If you have any questions about how a future bankruptcy filing might affect your shared financial obligations, seek legal counsel.
Contact an Experienced Bankruptcy Attorney Today for Guidance in Florida and Georgia
If shared debt or joint account arrangements are in play and bankruptcy is being considered, contact our attorney at The Law Offices of David K. Blazek, P.C. We can review how your arrangements may be affected and what steps can be taken to protect all involved parties. With offices in Tampa, Florida; Boca Raton, Florida; and Atlanta, Georgia, we serve clients throughout Miami, Jacksonville, and Orlando, Florida, as well as Macon and Columbus, Georgia. Call now.