How Does Bankruptcy Affect Co-Signers?

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If your friends or family members have helped you apply for loans or credit, they are your co-signers. If you are drowning in debt and decide to file for bankruptcy, your actions are going to affect them too. A Bergen County Chapter 13 bankruptcy lawyer from our firm can tell you what to expect and why your co-signers will appreciate a warning about what you plan to do.

Should I Let Co-Signers Know Before I File For Bankruptcy?

You definitely should make any co-signers aware that you are planning to file for bankruptcy, They should be aware that creditors could be in touch with them and that they might even be expected to pay off a significant debt. If someone was nice enough to help you get a loan, you should at least pay them this common courtesy.

Does a Bankruptcy Stay Apply to Co-Signers?

A stay is issued when you file for bankruptcy, preventing creditors from pursuing collection actions against you until your case is completed. In Chapter 13 bankruptcy, this often protects your co-signer as long as you make a payment plan and promise to pay off that particular debt in full. However, in Chapter 7 bankruptcy, a creditor might decide to pursue your co-signer despite the stay.

Can Others Be Forced to Pay Off My Debt?

Because of how a stay works and your request to discharge a debt, co-signers can be asked to pay off a debt when you file for Chapter 7 bankruptcy. If you try to get your debts discharged, a creditor might look at your loan and realize “Hey, someone else signed onto this.” Then they can go after a co-signer even though you are now considered debt-free.

If your co-signer cannot pay your creditor, their own credit score is likely to take a hit. The person who co-signed that debt for you is unlikely to be happy about this. That’s why you should warn them before you decide to go through with bankruptcy.

How Can Co-Signers Protect Themselves?

Once they know that you are filing for bankruptcy, co-signers can ask you to sign a reaffirmation agreement. This is a document that can be used during Chapter 7 bankruptcy whether you signed onto a debt alone or with someone else.

Essentially, a reaffirmation agreement tells your creditor that you are wiping out your debts, but you’re electing to keep this one. This is common with debts like car loans. Instead of having to get rid of your vehicle, you can sign a reaffirmation agreement and keep making your loan payments.

Because you are taking responsibility for the debt, your co-signer won’t have to worry about a creditor coming after them and asking for money.

Talk to a Bankruptcy Attorney

If you want to learn more about how bankruptcy works and how your co-signer could be affected by your filing, contact the Law Office of Boyd & Squitieri. We can schedule a consultation and help you figure out if this is the right way for you to get your fresh financial start.