When getting a loan, many folks depend on the assistance provided by a family member or close friend. This is because a co-signer increases the chances of securing a loan, whether for purchasing a car, taking out a personal loan, or getting a credit card. If you are in a difficult position and considering filing for bankruptcy, you will probably want to know what becomes of a co-signed liability. The outcome will vary depending on the type of bankruptcy you file and the liability itself.
What is a co-signed debt?
When it comes to co-signed debts, one person can be held accountable for another person’s debt if they fail to pay back the loan. Co-signed debts are common when the borrower lacks a credit history or has a poor credit rating.
When viewed from the lender’s point of view, the debtor and the co-signer are equally liable for the debt. As such, in the event of default on the loan, the lender will hold either of them accountable.
How Chapter 7 bankruptcy impacts co-signed debts
Chapter 7 bankruptcies can lead to debts being discharged, which means you are not obligated to repay those debts. Nevertheless, a discharge granted by a court to an individual under Chapter 7 does not cancel the rights of the creditor to collect on a co-signed debt.
For instance, if your parents co-signed a car loan and their child declares bankruptcy, the creditors can sue the parents for the remaining balance on the car. Thus, a co-signer can still be liable to repay the debt even though the debt is discharged by the original party.
If you want to keep some of your property, there are ways to do that while continuing to pay back debts.
How Chapter 13 bankruptcy can help
An advantage provided by Chapter 13 that is not found in Chapter 7 is the co-debtor stay provision. The law provides a co-debtor stay, which stops the creditor from attempting to recover any consumer debt from the co-signer while the Chapter 13 repayment plan is active.
If you are current with your repayment plan, the co-signer will have some protection from any form of collection activities. This makes Chapter 13 an appealing choice for folks who wish to limit the financial impact on the family member or friend who helped them secure the loan.
Planning before you file
If there are any co-signed debts, it would be wise to speak to a bankruptcy attorney about them before filing your case. Timing, type of debt, and long-term financial plans are factors that could determine the best course of action to take.
Depending on the situation, it may be necessary to continue paying off one certain loan. Or else, there may be a better way to file Chapter 13. Every situation is different, and proper planning will prevent unwanted results.
Talk to a Danville, IN, Bankruptcy Attorney Today
Chris Arrington represents the interests of those who need to file for bankruptcy. Call our office today to schedule an appointment, and we can begin reviewing your financial situation right away.