How to Protect Your Cosigner During Bankruptcy
If you’re considering filing bankruptcy, one issue weighing heavy on your mind is what will happen to your cosigner and their credit.
Bankruptcy attorney Liz German discusses how to protect your cosigner when you file for bankruptcy protection.
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Protecting Your Cosigner During Bankruptcy
A common question that we get asked is how filing a bankruptcy will affect any cosigners on your debts.
People often have cosigners to ensure lower interest rates.
For example, you might have a parent who cosigned on a car loan, but what if you want to surrender that car and get the balance discharged in your bankruptcy?
Who is Protected in Chapter 7
Unfortunately, if you file a chapter seven bankruptcy, only you are protected by the automatic stay, which protects you from creditor harassment and attempts to collect.
It does not stop a creditor from contacting your cosigner and attempting to collect.
A Cosigner Still Owns the Debt
Likewise, just because a balance on a debt is discharged for you as the debtor, it does not discharge the obligation on your cosigner, and he or she will remain responsible for that debt.
But, we know that protecting a cosigner is important to a lot of our clients, since often times a cosigner is a close friend or a family member, so what can you do to protect a cosigner?
Steps to Protect Your Cosigner
Take Back the Debt
First, you can choose to give up the benefit of a discharge and reaffirm the debt, which means that you would keep paying on it.
This applies especially to assets like cars and things that you’re financing.
Consider Filing Chapter 13
Second, a chapter 13 bankruptcy option may provide more protection to your cosigner, especially if the balance is paid through your chapter 13 bankruptcy plan.
Ch. 13 Offers Cosigner Protection
In a chapter 13 bankruptcy, the protection of the automatic stay, which stops creditors from harassing and contacting you in attempts to collect, will be extended to your cosigners so long as you’re paying on your monthly bankruptcy plan.
This is something that you should really speak with a bankruptcy attorney about so that they can help you decide what the best option is for you to avoid hurting your friends and family.