How Will Bankruptcy Affect Co-Signers

Friends, family, co-workers, neighbors, spouse: co-signers come in all forms. Those co-signers are the reason borrowers can purchase that car, house or boat. They are the reason borrowers are trusted with credit cards, loans and mortgages. So when we file bankruptcy borrowers are saving their skin but neglecting the ones that saved it in the first place. The co-signers may not be covered and creditors will go after them.  That’s why co-signers must contact us for protection.

The co-debtor, or co-signer, is risking their credit history so you can build one. When you fall behind they must pick up the slack for you. It’s their responsibility. When they signed their name to the loan contract, they are bound to the borrower’s loan, and you are tied to the loan until the debt is paid off. It is a vow that you will take over payment until the debt is repaid. The strong credit history of the co-signer will entice lenders and banks to take a chance on the borrower. The borrower will build credit and eventually stand on their own.

For some borrowers the monthly payments start piling up and they fall behind. The co-signer can’t keep up with the payments either despite valiant efforts. The decision of filing bankruptcy will affect them just as much as it affect you. How it affects them depends on what chapter you file.

  • Chapter 7 filing provides the least protection for co-signers. While debts are discharged and most can be paid back by selling valuable merchandise, co-signers have signed loans. Because of their obligation they will not escape responsibility.
  • Chapter 13 filing provides some protection for co-signers. This filing requires a court-approved repayment plan, and the borrower will have to repay the debt in monthly fashion. Most co-debtor detbs are eraced but the ones not included in the repayment plan are still the co-debtor’s responsiblity. As long as payments are made co-signers are protected with “co-debtor stay,” an enforced rule forcing creditors to stay away from co-signers. If they fall behind the co-signer will have to resume payment.

No matter what bankruptcy chapter is filed the credit reports of both the borrower and the co-debtor is going to hurt. You may push for chapter 13, but the borrower is going to file based on what is the best road for them. The best road for them may or may not be the best road for you. It may get to the point where the co-signer may have to file bankruptcy themselves.

Co-signers have our backs when we’re in a financial bind. They were willing to put their credit on the line for you. Bankruptcy can make a civil matter messy. Creditors don’t care who they harass as long as the money returns to their possession. There are attorneys available to save our co-signers from paying our financial debt. A Dayton, Ohio Bankruptcy Attorney can file bankruptcy to protect you and your co-signer from the wrath of creditors. Don’t leave co-signers in the dust.  

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