When you want to file for bankruptcy, you’ll need to take a number of important factors into consideration, like the impact it can have on your credit score or the property you could risk. However, if you have co-signed debt, you’ll also need to consider how it will impact the individual who signed with you. Unfortunately, bankruptcy does not offer many protections for co-signers. However, there are steps you can take to help protect the individual during this process. The following blog explores what you should know about these matters, including the importance of working with a Montgomery County bankruptcy lawyer to explore your legal options.
Can My Co-Signer Be Held Liable if I File for Bankruptcy?
Generally, if you file for bankruptcy, your co-signer does not receive the same level of protection from creditors that you will. In Chapter 7, they will receive no protection. As such, if you choose to file Chapter 7, you must understand that the automatic stay does not extend to your co-signer, nor will the discharge of your debt apply to them. Creditors can pursue your co-signer for the debt in their name.
With Chapter 13, your co-signer will have more protection. When pursuing Chapter 13, you’ll receive an automatic stay for the entirety of the time it takes you to complete your three- to five-year repayment plan. Generally, the automatic stay will extend to your co-signer under the Chapter 13 co-debtor stay. However, the creditor can petition the court to lift the stay on your co-debtor if they will suffer irreparable harm with the stay in place or if your co-signer received benefits for the creditor’s claim.
What Can I Do to Protect Someone Who Co-Signed Debt for Me?
If you need to file for bankruptcy but worry about what will happen to your co-signer, it’s important to understand the steps you can take to protect them from creditors.
When filing Chapter 13, the easiest way to help protect a co-signer is to pay off the debt during your repayment plan. This can help, as even though the remaining amount will be discharged for you at the conclusion of your case, it will not be for your co-signer.
If you choose to file for Chapter 7, there are a few measures in place you can take to help protect your co-signer. The first is to reaffirm the debt in your name. This essentially lets you waive the discharge of the debt at the conclusion of the case, meaning you will continue to be liable for making payments. If you do not want to reaffirm the debt, you can continue to make payments on the discharged debt, despite the fact that you are no longer liable. However, obtaining a reaffirmation agreement is generally best to protect your co-signer.
When you are considering bankruptcy, regardless of whether or not you have a co-signer on certain debts, the most important thing you can do is connect with an experienced bankruptcy attorney. At Mudrick & Zucker, P.C., our team understands how complicated these matters can be. That is why we are committed to fighting for you. Contact us today to learn more.
