Having to actually go through the process of declaring bankruptcy in relation to your own property and possessions can be a tough enough experience for most people, but the \”pain\” of the experience can be magnified if some of your property or possessions involve a co-signer, who has now become your co-debtor.
You see when you declare bankruptcy it only affects your own requirement to repay the debts you owe. In the vast majority of cases though your co-signer is left having to repay their portion of the debt, even if you\’ve had your own financial liability for that particular debt fully discharged by the courts. Basically if you have any financial connection with another party your bankruptcy filing means that you are no longer responsible for paying for the debt, however, the co-signer is not off the hook relative to his obligation.
So lenders and creditors can and will pursue the amount of the debt \”owned\” by your co-signer or co-debtor – in fact the reason why you had a co-signer in the first place is that your \”loan\” was viewed as being high risk so your creditor needed a third party to pursue in case you decided to renege on your debt, or simply find yourself unable to pay it. This means that the co-signer either knew, or should have been made aware of, the risks involved before signing whatever financial transaction was involved.
Oddly enough though different bankruptcy filings can affect your co-signer in different ways, as we\’re about to explain here.
Chapter 7
If and when you file for Chapter 7 bankruptcy your co-signer does not get to enjoy the same legal protection you do from your creditors. This means that creditors can still pursue your co-debtor to reclaim whatever is due to them, leaving your co-signer to fend for themselves.
Chapter 13
This type of filing allows you to protect co-signers but only on any consumer debt owed – business debts are excluded. So even if your co-debtor didn\’t file for bankruptcy a Chapter 13 filing prevents creditors from pursuing either party for money owed to them.
It\’s worth mentioning though that creditors can have this \”protection\” removed for a number of different reasons, especially if your Chapter 13 repayment plan doesn\’t include any repayments to this particular creditor.
You can also reaffirm a debt after declaring bankruptcy, which simply means you are agreeing to repay that debt to the lender regardless of what debts were discharged as part of your bankruptcy case. This means you can take the financial pressure off your co-signer by simply agreeing to repay specific debts they\’re involved in – cars being a perfect example of the type of debt most people will want to reaffirm.
The above is also a valuable lesson for those of you tempted to co-sign for friends to \”help them out\” of a tight financial spot. The reality is that if somebody does require you to be their co-signer on any kind of financial agreement it means they\’re already in financial difficulty, which is why they need you to co-sign for them in the first place.
Loyalty can be an expensive character trait at times ladies and gentlemen.
If you need further advice on the above matter then please do seek the help of a fully qualified and experienced bankruptcy attorney.