When Your Co-Signer Files Bankruptcy
The bankruptcy process may seem challenging depending on personal circumstances and which chapter is filed. It is often wondered what happens when a co-signer files for bankruptcy protection. In many cases, a co-signer situation makes both parties responsible for outstanding debt. If the account in question goes into default, either party can be pursued by the creditor for payment.
The Automatic Stay Goes into Effect
When bankruptcy is filed the automatic stay goes into effect. This helps stop creditors from further collection action under court order. Keep in mind, this action usually stops collection activity on a personal level; meaning for the person who files the petition. The action may not protect against creditors collecting from others listed on the account. Chapter 13 bankruptcy may offer extended protection to co-signers but it may not apply for Chapter 7 filers.
When the Debt is Discharged
If a discharge of debt is granted, it's possible the creditor may pursue payment from non-discharged signers on the account. The situation may vary if the debt in question is related to secured property or collateral. Certain co-signer debts may not be dischargeable under Chapter 7 bankruptcy . There are aspects of dealing with a co-signer bankruptcy that should be reviewed with a bankruptcy attorney.
When a co-signer decides to file bankruptcy, you'll want to review your rights with a legal expert since protecting your interest's could become challenging depending on the type of debt involved. Gaining an understanding from an experienced attorney will help you know what to expect.
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If you would like to ask us any questions about the bankruptcy process we are always willing to help. Contact us today and ask us any questions you may have or set up a free consultation.