How does bankruptcy affect co-signers?

Co-signers could be responsible for your debt if you fail to pay it. A co-signer is someone who entered into a legally binding contract with you and a lender. At that time, the co-signer agreed to repay the debt if you failed to do so. For those who are entering bankruptcy, it is critical to think of the consequences of doing so when you have a co-signer on one of the debts you hope to discharge.

Co-signers and Bankruptcy

If you file Chapter 7 bankruptcy, you are requesting that the court discharge or cancel your debts. If one of the debts you wish to discharge has a co-signer, the co-signer could be responsible for repaying the debt, even if the court discharges the debt from your requirements to repay.

It is possible to avoid this, though. 

• File Chapter 13 bankruptcy instead of Chapter 7. Here you will enter in a three to five year repayment plan to pay off some of your debt. The co-signer is then not affected by the bankruptcy.
• Discuss the situation with the co-signer and determine the best route for that individual.
• Pay off that debt prior to filing bankruptcy.

Keep in mind that there are stipulations to take into consideration in all situations. For this reason, hire an attorney to discuss your options when it comes to filing bankruptcy with a co-signer on one of your accounts.

Hire an Attorney

Before you file bankruptcy, hire an attorney. The attorney can offer suggestions on how to protect co-signers from situations like this.