Bankruptcy may be the best solution to for your financial future, but it may hurt the co-signers that were willing to back you in the past. It’s not always easy to convince people to co-sign for you, and it generally shows a great deal of trust, so of course you don’t want your financial freedom to cost your friends and family theirs.
- Chapter 7- As soon as you file for Chapter 7, you are protected from any liability from creditors and collectors but co-signers are fair game. Collectors will shift all focus from you to your guarantors. To protect co-signers from creditors and collectors, you can do one of two things.
- Reaffirm your debt- this means that you will continue to be responsible for any debts not covered from your bankruptcy. This isn’t ideal as you would be forfeiting the discharge of debt that makes bankruptcy a good option.
- Continue making payments- there is no reason that you couldn’t continue to pay off your debts after filing for bankruptcy. This is the better option because you still get the discharge of debt and you can just make payments on the bills your co-signer is liable for to protect them.
- Chapter 13- This is a better option for those with co-signers and joint account holders because it is a reorganization of your debt that will allow you to pay off the debts that have co-signer obligations. However, debt collectors can continue to pursue co-signers even after you file bankruptcy if one of the following is true:
- The co-signer received the most benefit from the loan
- Your bankruptcy payment plan does not include the co-signed debt.
- The bankruptcy is canceled or changed to Chapter 7
- The creditor interests will harmed by a cosigner stay
The best solution is to consult a bankruptcy lawyer and disclose all information, including everything about co-signers and joint account holders, so that they can help you to navigate your way through the bankruptcy process and end up at the best possible ending.
Garland & Mason, L.L.C. – Bankruptcy Attorneys