If 2 people are signed on a loan and both go into bankruptcy but 1 re-affirms the loan, does the other person’s name get taken off of the loan?

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If 2 people are signed on a loan and both go into bankruptcy but 1 re-affirms the loan, does the other person’s name get taken off of the loan?

Asked on February 4, 2014 under Bankruptcy Law, Michigan

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 7 years ago | Contributor

Bankruptcy Courts are very reluctant to allow Reaffirmation Agreements within a Bankruptcy since that eliminates the “fresh start” that the Bankruptcy was intended to provide. In essence, such agreements are the antithesis of the purpose of bankruptcy; a reaffirmation gives up the very thing the debtor sought by the filing. Accordingly, judges go out of their way to find reaffirmation agreements improper. Unless reaffirmed, not only is the loan liability extinguished, but any further action to collect upon the discharged debt is prohibited. So, after the Chapter 7 discharge, the focus changes from entering into improper reaffirmation agreements to acts in violation of this discharge injunction. The discharge order makes clear that lenders cannot take any action to collect a debt as a personal obligation of the borrower. However, they can run afoul of this prohibition in a variety of ways.

Answer: The discharged person's name is not taken off the loan but that person is no longer responsible for the loan due to the bankruptcy discharge.


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