Your Cosigner Is Responsible For Your Debts,
Now and In Bankruptcy
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
What is a Cosigner?
A cosigner is a person who signs a loan document and agrees to pay the loan if you (the primary borrower) don't or can't. A bank may require you to get a cosigner if you do not have the income and credit history that they can depend on for you to pay the loan. If you do not repay the loan, the lender can pursue your cosigner to collect the debt.
Your Cosigner and Bankruptcy
As soon as you file for personal bankruptcy, the court issues an "automatic stay". This immediately stops creditors from trying to collect money from you. When your bankruptcy ends, you receive a discharge, which erases your legal liability to pay debts. But your cosigner is still liable for the debts that he agreed to pay.
Chapter 7 Bankruptcy
The moment you file a Chapter 7 bankruptcy, the court's automatic stay stops all collection activity against you. But the automatic stay does not stop collection activity against your cosigner. So your creditors can still try to collect any money you owe from your cosigner.
You Can Protect Your Cosigners If You File Chapter 7 Bankruptcy
1. You can reaffirm the debt.
Before you receive the bankruptcy court's discharge in your case, you can decide to "reaffirm" any of your debts. This means even after your bankruptcy has ended, you will continue to pay on those debts and be legally liable for those payments. While this may not be a good idea in your case, it does protect your cosigner from responsibility as long as you make those payments.
2. You can pay off the debt.
After you receive the bankruptcy court's discharge, you are no longer legally obligated to pay any discharged debts. However, if you want to protect your cosigner from collection efforts, you can voluntarily pay off the debt on which the person cosigned.
You Can Protect Your Cosigners If You File Chapter 13 Bankruptcy
When you file Chapter 13 bankruptcy, your cosigners on consumer debts are protected from collection efforts under the court's automatic stay. This is called the "Chapter 13 Codebtor Stay". But while they are protected, your creditors can still ask the bankruptcy court to remove the stay if...
your cosigner received the consideration for the creditor's claim,
you do not propose to pay off the debt in full through your repayment plan, or
the creditor will suffer permanent harm if the stay remains.
If you have questions about cosigners and their liability in bankruptcy, please call me. You can reach me at 312-969-0730.