How Does Personal Bankruptcy Affect Co-signers?
Co-signers are there as vouchers for people who cannot obtain credit on their own. When the main person cannot pay their bills creditors will go after the co-signer. A co-signer goes in with the intention that it won't come to that point. So if bankruptcy is filed on behalf of the main person, is the co-signer in the clear too?
Co-signers took on the responsibility to help someone gain something (car, loan, house, etc) when that person couldn't do it themselves due to their bad credit. Co-signers hope that helping someone out doesn't turn into something they regret. Unfortunately it does come to that point; Personal Bankruptcy affects the person filing and everyone around them. Filing for bankruptcy gets the person filing in the clear but co-signers are stuck with creditors harassing them.
How bankruptcy affects co-signers depends on the type of bankruptcy filed. If the main person filed for chapter 7 the co-signer will have to pay all discharged debt. Since chapter 13 is about creating a court-approved repayment plan the co-signer is free from obligation as long as the main person pays their monthly payment. The co-debtor stay is activated for co-signers as protection. If they fall back on payment co-signers will have to pick up the slack. Co-signers for businesses that file for bankruptcy don't have protection at all from it.
It sounds like chapter 13 is better for co-signers than chapter 7. The person filing, however, is going to file in the best interests of his or her finances, and the best interests may not be chapter 13. Co-signers have to look out for themselves too because their credit is at stake it the bill isn't paid.
Co-signers come in the form of strangers, friends, co-workers and family. A bond this close can easily be ruined because of debt, and filing for bankruptcy makes the situation more difficult. Lenders and creditors don't care who pays the debt because they have a choice. As long as it is paid it doesn't matter to them either way. Talk to the Law Offices of Robert Kovacs about this delicate situation. Contact us for more information on co-signers and bankruptcy.