Should I File for Bankruptcy If I Have A Co-Signer?

If someone has co-signed a debt of yours and you file for bankruptcy, your co-signer may be affected. That could be a parent, a sibling or friend whom you do not want to hurt.

We need to consider the different impacts of the two main consumer bankruptcy chapters upon the co-signer. If you file in Chapter 13, the automatic stay will immediately prohibit collectors from using collection efforts against you. If you have any co-signer on your debt, a co-debtor stay will also be in force by virtue of your bankruptcy filing, and therefore your co-signer cannot be pursued by collectors. In order for your co-signer to qualify for the co-debtor stay, the co-signer must be an individual and not a business entity and the debt in question must be for personal purposes and not business purposes.

It is important to keep in mind that the co-debtor stay will be lifted after the Chapter 13 bankruptcy is completed. If the debt was not discharged or paid in full during the chapter 13 repayment plan, collectors are able to collect the unpaid portion of the debt from co-signers.

Unfortunately, unlike chapter 13 bankruptcy, there is no co-debtor stay in Chapter 7. In a chapter 7 bankruptcy, you will be discharged from all debts, but your co-signer will remain liable for the debt, unless your co-signer has also filed for bankruptcy with you. You may want to consider reaffirming a co-signed debt to protect your co-signer. That requires execution and filing of a written reaffirmation agreement with the court to make that debt an exception to discharge. That means that you would remain liable on that debt after receiving your discharge. Keep in mind that the judge has the power to disapprove a particular reaffirmation agreement if s/he considers it to be unfair to you or other creditors in your case.

Alternatively you can continue making voluntary payments on the debt to to take the pressure off your co-signer.

Consultation with experienced legal counsel is key when evaluating how your bankruptcy filing may affect your co-signer. Call me today for a free initial consultation.

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Charles D. Whelan III has been committed to excellence for over 30 years. With offices located centrally in New Jersey, he is able to provide businesses and individuals with excellent legal services.

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