How Bankruptcy Affects Cosigned Debts
Filing for bankruptcy can provide you with the financial do-over you need to get back on track. It’s important to recognize, however, that bankruptcy not only affects your finances but also those of anyone who has cosigned a loan for you. In order to navigate this challenging legal terrain, you’re well advised to have trusted legal representation backing you up. And our experienced Florence bankruptcy attorneys at Reed Law Firm, P.A., welcome the opportunity to help.
Chapter 7 Bankruptcy and Cosigners
Chapter 7 bankruptcy is a liquidation process that wipes out most unsecured debts. An automatic stay applies, which protects you from collection actions while your bankruptcy is pending. Once your Chapter 7 bankruptcy is finalized, the debts addressed will be cleared away.
The Cosigner’s Responsibility
If you have a debt that someone cosigned for you, your Chapter 7 bankruptcy filing will not affect their financial responsibility. In fact, the cosigner specifically agrees to cover the debt if the primary borrower fails to fulfill their financial responsibility. As such, cosigners are legally obligated to cover all the following:
- Missed payments
- Late fees
- The full balance, in the event the primary borrower defaults
Creditors and Cosigners
Once you file for bankruptcy, your creditors can no longer seek payment from you. This motivates most creditors to pursue payment from cosigners, who remain subject to collection practices.
In order to protect a cosigner or cosigners in a Chapter 7 bankruptcy, you have the option of reaffirmingyour debt with the creditor, which means signing a new agreement. You could also continue to voluntarily make all the necessary payments for the cosigned debt that was discharged.
Chapter 13 Bankruptcy and Cosigners
With a Chapter 13 bankruptcy, the court will not only issue an automatic stay that protects you from collection actions but also one that protects your cosigners. The cosigner’s stay will extend through your repayment plan.
Under some circumstances, a creditor can request that the bankruptcy court lift the cosigner stay. A prime example of this is when a cosigner benefits from the loan they cosigned, such as if they drive the car they cosigned a loan for.
Your Chapter 13 repayment plan will ultimately determine whether your cosigners are protected financially. If your three- to five-year repayment plan includes paying the cosigned debt in full, the person who cosigned for you is protected. If only part of the balance will be paid, however, the creditor retains the legal right to seek the remaining balance from your cosigner.
In other words, it’s complicated. Seek the professional legal counsel you need.
Our Experienced Florence Bankruptcy Lawyers Are on Your Side
Our formidable Florence bankruptcy attorneys at Reed Law Firm skillfully champion the rights of clients throughout the state, and we’re here for you, too. Our knowledgeable legal team cares about you and your case, so please don’t put off reaching out for more information by contacting us online or giving our firm a call at 843-679-0077 today.
