What Happens To Co-Signers If Someone Files For Bankruptcy?
Among the obstacles that stand in the way of filing bankruptcy in the minds of many debtors is the question of co-signers. Many people who would otherwise move toward filing bankruptcy hesitate out of concern for co-signers — or uncertainty.
In your case, the way you approach this issue may depend on who the co-signer is. If your parents, your brother or sister, friend or business partner co-signed on a loan, you most likely want to protect them (or him or her) from collection hazards. On the other hand, if your co-signer was an ex-girlfriend or ex-boyfriend, you may be less concerned about shielding that person.
In either case, it is helpful to know that:
In a Chapter 13 bankruptcy, the automatic stay that goes into effect upon filing protects co-signers from collection efforts. This means that during the three- to five-year repayment period, creditors are not allowed to pursue collection efforts — including going after co-signers without court approval.
At the end of the Chapter 13 repayment period, there remains the possibility that a creditor may go after a co-signer for whatever portion of debt remains.
A Chapter 7 bankruptcy is over much more quickly. Therefore, the period of protection of co-signers is much shorter. In just a few months, creditors can once again pursue co-signers. This is one reason that many debtors with co-signer concerns choose Chapter 13 bankruptcy.
Keep in mind that generalizations on a website such as this may not address unique aspects of your financial status, including co-signer issues. A personalized consultation with a bankruptcy law attorney is the way to get answers that address your unique circumstances.
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The law office of Ben Sissman is a debt relief agency that helps people file for bankruptcy relief under the Bankruptcy Code.