Expert: Mark J. Markus- California Bankruptcy Attorney - 1/27/2009

Question
My wife co-signed a car loan for her son.  He is in midst of filing chapter 11.  When we were applying for refinancing our home, the credit company informed us that the loan was not current.  We called the finance company and arranged for and got the account current.  When the credit company called to verify they were told that the account had been 120 days past due and that it was put on a "charged off" status.  My question is - why were we not notified that the car was in bankruptcy procedings by the court and why were we not notified that the loan was not being kept current.  Also, we were told that to get approval on our refinancing we would have to pay off the entire balance.  If we do, can the trustee use those funds and apportion the money to other creditors.  We are in PA.

Answer
I'm not completely sure of the answers, but you were probably not notified of the bankruptcy case because you were not properly listed as a co-debtor on the vehicle loan on your son-in-law's bankruptcy papers.  It's his responsibility to do that, not the court's.  And, if he filed a Chapter 11 case, he is a debtor-in-possession and acting as a fiduciary to the creditors, so there may be other ramifications for failure to properly list things on his schedules, but I somehow doubt it's a chapter 11 he filed (quite unusual for an individual).  

No the Trustee cannot use the funds you pay on debts you owe (and, in any event, if it truly is a Chapter 11, then your son-in-law IS the Trustee).