How will chapter 13 affect co-signers?

In Chapter 13 bankruptcy, individuals enter a process of repaying most of their secured and priority debts during a three to five year repayment term. During this time, a monthly payment is sent to the bankruptcy trustee from the filer to pay towards the debts. Some types of unsecured debts, including medical debt and credit-card debt, is discharged. However, it is often the case that debts that have co-signers are treated differently.

Chapter 13 and Co-Signers

A co-signer is someone who has agreed to pay towards a debt if the principle owner of the loan fails to do so. If you were to file Chapter 7 bankruptcy, the co-signer is liable for repaying that debt to the lender if you fail to do so. However, once you file Chapter 13 bankruptcy, the co-signer is protected. However, the stay that the co-signer receives is only applicable as long as the following is true:

• The individual enters into a repayment plan that is agreeable to the lender and to the bankruptcy trustee.
• The co-signer does not receive any specific benefits from the proceeds of the debt.
• The debt is a consumer debt, not a personal debt.
• The bankruptcy remains current in repayment.

For those who are filing bankruptcy with co-signers, and wish to protect that co-signer from becoming responsible for the debt, Chapter 13 is the best option.

Hire an Attorney

Before you file bankruptcy, hire an attorney to help you through the process. You can protect your assets and your co-signers in most situations with the aid of an attorney.