Today's Trends in Credit Regulation

Two Debtors Are Better Than One
By Shelley B. Fowler

There are many reasons why you might have two people liable on a single debt. Many times it’s because one of the two people, alone, is not sufficiently creditworthy. You want some added protection in the event of default: You have two people from whom you can attempt to collect if the debt becomes delinquent.

In the case of a bankruptcy filing by one of the two debtors, there are rules about the effect of the bankruptcy filing on your ability to collect from the non-filing debtor while the bankruptcy case is pending. But, despite the rules that you need to follow during the pendency of the case, the added protection provided by a co-debtor after the filing debtor receives a discharge and the bankruptcy case is closed is clear. This recent case is a perfect example.

When Valerie Faulkner filed her Chapter 13 bankruptcy plan, she proposed to pay CEFCU, the holder of a lien on her 2002 Chevrolet Trailblazer, its $11,375 secured claim in full at a rate of 9% and to treat the remaining $4,731 owed to CEFCU as unsecured. After Faulkner completed her plan payments and received a discharge, she requested that CEFCU release its lien on her vehicle in accordance with her plan, which provided that creditors will retain their liens upon their collateral until they have been paid the value of the collateral.

CEFCU refused, claiming that it should not be required to release its lien until the remaining amount of its unsecured claim, plus interest, is paid by the co-debtor, Shomari Hollis. Faulkner sued, claiming that CEFCU’s refusal to release its lien violated the discharge injunction.

The U.S. Bankruptcy Court for the Central District of Illinois granted judgment for CEFCU. It found that, despite the lien release provision in the plan, the discharge of a debtor’s debt does not affect the liability of any other entity for that debt. Therefore, the court concluded that CEFCU’s lien can remain in place after Faulkner received her discharge and can be enforced against Hollis and Hollis’s interest in the vehicle until CEFCU receives payment in full of its claim at the contract rate.

So, in this case, if there had been no co-debtor, the creditor never could have recovered the remaining unsecured claim that was discharged. But because the discharge did not affect the co-debtor’s liability, the creditor can still seek repayment of the amount discharged, plus interest, from the co-debtor.

In re Faulkner, 2013 Bankr. LEXIS 2018 (Bankr. C.D. Ill. May 17, 2013).

Shelley B. Fowler is a Managing Editor of CARLAW, HouseLaw, PrivacyLaw, and Spot Delivery. Shelley can be reached at 410-865-5406 or by e-mail at

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