Schedule H: How to Protect Co-Debtors from Debt Liability

Did you know that filing bankruptcy can instantly leave your spouse, ex-spouse, or parent fully liable for the entire debt? This applies even if your divorce decree says otherwise. Today, I’m covering Schedule H: Co-Debtors, and how to stop that from happening.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Listen: The Professor’s Audio Briefing.

Introduction to How to File For Bankruptcy

Welcome back to my video series, where I’m walking you through each section of the bankruptcy petition. For those new to my YouTube channel or blog, I’m Professor Alex, a bankruptcy attorney with 26 years of experience, and the author of Consumer Bankruptcy Law.

My focus, as always, is on the critical legal issues you won’t find in the forms or online searches. I don’t spend time on simple form-filling; I help you recognize an issue before it happens, because once your petition is filed, it’s often too late.

Understanding Co-Debtor Liability and Schedule H of the Bankruptcy Petition

A co-debtor is simply the other person listed on a debt, a spouse, a domestic partner, a friend, or a family member.

Here’s the first critical reality: When you file for bankruptcy, the co-debtor instantly becomes FULLY RESPONSIBLE for the entire balance of that debt.

If you are married and considering filing, the decision for your spouse to file with you must be made now. If they decide to file later, you will end up paying for two cases instead of one. Make that joint decision today.

The Conflict: Divorce Decrees vs. Federal Bankruptcy Law

A common and dangerous scenario involves an ex-spouse listed as a co-debtor following a divorce.

Your Marital Settlement Agreement or court order likely contains a ‘Hold Harmless’ clause, stating the other spouse is responsible for the debt. This feels like protection, but you must understand the Hierarchy of Law:

1. State Court: (Family Court) issues the divorce decree and “Hold Harmless” clause.
2. Federal Court: (Bankruptcy Court) governs the debt contract.
3. The Reality: Federal law is supreme.

That state court judge simply does not have the legal authority to undo the contract you both signed with the original lender. When bankruptcy is filed, that ‘Hold Harmless’ protection is essentially voided, and the lender will immediately pursue the non-filing co-debtor.

If the spouse doesn’t file, the ‘Hold Harmless’ clause does allow you to return to state court to enforce it if the creditor files a lawsuit against your ex, forcing them to pay the debt.

The Protection of the Automatic Stay

The importance of listing all co-debtors, even non-spouses, is due to the Automatic Stay. This is your co-debtor’s immediate legal breathing room.

When you file for bankruptcy, the Automatic Stay immediately stops collection lawsuits against you. Crucially, by listing the co-debtor on Schedule H, they are also protected from those creditor actions.

• In a Chapter 13 case, that protection can last three to five years.
• In a Chapter 7 case, it lasts for a few months.

This protection buys your co-debtor time to assess their options, whether that’s filing their own bankruptcy, negotiating a payment plan, or deciding to take possession of collateral like a vehicle.

The Only True Solution

The only real way for a person to be removed from all liability on a debt is for the other party to refinance the loan solely in their name.

This is no different from a Quitclaim Deed in a divorce. The Quitclaim transfers property interest, the house title, but does not transfer mortgage liability. That original mortgage will remain on your credit for decades, affecting your ability to qualify for future loans, until it is refinanced or paid off.

Therefore, always list your co-debtor on your bankruptcy petition to provide them with the immediate protection of the automatic stay and ensure they are given official notice if there was a previous divorce filing.

Conclusion and Next Steps

In summary, Schedule H is the essential lifeline for your co-debtors. List them to leverage the power of the Automatic Stay and push for the only true long-term fix: refinancing the loan.

Next week, we’ll dive into the most complicated part of the entire petition: your income and expenses, as well as the Means Test, and how it determines your eligibility.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.