How Does Bankruptcy Affect Co-Signers?

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One of the considerations when deciding to file for bankruptcy protection is the affect it will have on anyone that has co-signed on your loan(s).  Additionally, many people want to keep the fact that they are filing for bankruptcy unknown to others. It is important to talk to a bankruptcy lawyer about these issues, and let them know what you want to accomplish. You can find lot’s of bankruptcy information online, but the fact is, bankruptcy laws are complicated, and a bankruptcy lawyer is the only way to get real bankruptcy advice for a given situation.

Effect of Chapter 7 Bankruptcy on Co-Signers

If you pass the means test, and are granted chapter 7 bankruptcy protection, you will be relieved of all of your debt through the bankruptcy discharge, but you will also lose a lot of your personal property.

Your creditors will still be able to go after any co-signers, unless you choose to reaffirm the debts for which they have co-signed. For example, if someone co-signed a car loan on your behalf, and the bankruptcy trustee liquidates the car to repay some of your debt, then any remaining debt that was beyond the value of the car will likely be collected from the co-signer.

However, if you reaffirm the debt on that car, you will be allowed to keep it, and continue to pay it off, albeit at a lower monthly car payment. Your co-signer will probably not be affected.

How Will Chapter 13 Affect a Co-Signer?

If you choose to file for chapter 13 protection, or you are forced to due to a failure of the means test, then you and your attorney will offer up a repayment plan that is within your financial means.

Because you are repaying some (or all) of your debt through this plan, creditors are unlikely to go after any co-signers in a chapter 13 case. Your bankruptcy lawyer may be able to get the court to legally forbid creditors from attempting to collect from any co-signers.

Always Get Advice from a Bankruptcy Lawyer First

If you are facing significant financial trouble, but are concerned about bankruptcy and its effect on co-signers, always talk to a bankruptcy lawyer first to get real legal advice about your options. Having a professional on your side is the best way to help you get back on your feet again.