What Happens to Cosigners During Bankruptcy?

If you have a cosigner bankruptcy may not be the best option for you. A cosigner on a loan is someone who agrees to ensure that you make your payment towards repaying that loan. If you fail to make that payment, the cosigner has agreed to resume making payments for you. Bankruptcy does not change this. In many cases, this can be a reason not to file for bankruptcy.

How Your Cosigner Is Affected

Many people need to use a cosigner to secure a loan. In general, the cosigner is someone who has a higher credit rating than the individual applying for the loan. The benefit of having this extra signature on the loan is that it provides more protection for the lender in the case. For those who are facing bankruptcy, cosigners can really have an effect.

• If you file for Chapter 7 bankruptcy, and you have a cosigner, the lender will be able to pursue your cosigner. The cosigner may become legally responsible for repaying the loan in full even if you are discharged from repaying it.
• If you file Chapter 7 and the cosigner is on a secured debt that you will keep, such as on your home loan or a vehicle, the cosigner is not affected so long as you continue to make payments towards the loan.
• If you file Chapter 13 bankruptcy, the cosigner is responsible if the debt is discharged, but if your repayment plan includes paying the debt in full, then the cosigner does not have to be responsible.

In short, if you pay back the money you borrow, your cosigner does not have to. However, bankruptcy does not discharge the requirement of that individual to repay the loan in full. In some situations, you can change the terms of the loan to represent just your name, if you are current on the loan and the lender agrees to this. However, if you are heading towards bankruptcy, this may not be the wise thing to do, especially if you are trying to defraud the lender.

Hiring an Attorney

In many cases, hiring an attorney is the most important thing you can do if you are facing bankruptcy. An attorney can help to protect your interests and help you to avoid problems with cosigners in the bankruptcy process. It may be possible to protect your cosigner and file for bankruptcy. An attorney will help you to determine this.