How Does Bankruptcy Effect My Co-Debtors?

Posted by Wesley Scott on June 15, 2019 at 5:02 PM
Wesley Scott

Many times applying for a loan or looking for an apartment, you are required to have someone co-sign. A co-signer can be a spouse, a parent, or a friend that agrees to be liable for the debt if the primary signer fails to make payments for whatever reason.

If you are considering filing for bankruptcy and have had someone co-sign on debt you plan to have discharged, it’s important to speak to an attorney to discuss how bankruptcy will impact your co-debtor.

Chapter 7 and Chapter 13 mean different things for co-debtors.

Chapter 7, which is the most common type of bankruptcy is liquidation of debt for the filer. If a debtor files Chapter 7 and receives a discharge, they are no longer liable for that debt. If there is a co-signer for that debt, the co-signer remains liable for that debt. This means that creditors can seek action against the co-signer for the full balance of the account. This action can include repossession of collateral secured to the debt, such as a vehicle, or the creditor can proceed with a foreclosure in the case of a house.

It’s important to discuss the impact a Chapter 7 will have on your co-signer with an experienced bankruptcy attorney.

Co-debtors experiencing the effects of a Chapter 13 are treated a little differently. As long as the debt is a consumer debt, the co-debtor gets the same protection as the debtor for the duration of the bankruptcy. A lot of times the balance of the debt is paid in full through the course of the bankruptcy and once the debtor receives a discharge, the co-signer is freed of the debt as well!

In instances where the debtor is planning on surrendering collateral secured to a loan, the co-debtor has to continue making payments to keep the collateral or have it repossessed.

Conclusion

To know how filing will affect those around you, visit www.kainscott.com to schedule a visit to speak with a bankruptcy attorney at Kain & Scott today!

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