When you file for bankruptcy and get your debt discharged, it can be a real weight off your shoulders. But what happens if you weren’t the only one who signed up to take on that debt? Your bankruptcy filing could end up complicating the finances of your co-signers. A Montgomery County Chapter 7 bankruptcy lawyer can tell you more about the potential effects of your actions.
Are Co-Signers Protected By the Bankruptcy Stay?
Yes and no. A stay can protect co-signers in Chapter 13 bankruptcy while you work out a payment plan. Chapter 7 bankruptcy is a different situation though.
In Chapter 7 bankruptcy, a creditor is likely to see that someone else signed up for this debt with you. They can then ask the court to lift the stay so that they can recover what is owed. Unfortunately, this is just how it works. You, as the filer of the bankruptcy, get protection from creditors, but the other person who signed onto the debt is not protected by the bankruptcy process.
Can Co-Signers Get Stuck With Debt After You Get a Discharge?
Because of this, you can get the rest of your debts discharged and emerge from this process debt-free, but whatever debt your co-signers agreed to will still exist. Instead of bothering you about it, your creditors move on and try to collect from a friend or family member who was nice enough to help you out.
It can be stressful to suddenly get someone else’s debt dumped on you. If your co-signer cannot pay this debt, they can end up experiencing financial difficulties. They could even see their credit score take a hit.
Can a Reaffirmation Agreement Be Used?
If a creditor is trying to stick your co-signer with a debt, you can try to prevent that and take some responsibility. A reaffirmation agreement can be used during Chapter 7 bankruptcy to tell a creditor that you don’t want to have their debt discharged. If you sign a reaffirmation agreement, you keep paying off that debt even as the rest of your debts get discharged. This way, the creditor does not need to pursue anyone else to recover what they are owed.
Should I Notify Any Co-Signers Before I File For Bankruptcy?
Now that we have explained what could happen to your co-singers during bankruptcy, it should not be a surprise that we recommend reaching out to them before you file. No one wants to suddenly be responsible for your debt, even if they helped you take out a loan and knew that this could be a possibility. Give co-signers adequate warning and some time to figure out what they can do.
Meet With Our Legal Team
When you are ready to learn more about bankruptcy and how it could affect your co-signers, contact Mudrick & Zucker. We can schedule a consultation and help you figure out if filing for bankruptcy is the right option for you.
