When you file bankruptcy, most often the debtor who files the petition, also known as the primary borrower, is protected from creditors. This may vary depending on which chapter is filed. It is possible for creditors to pursue collection attempts with the cosigner since they originally agreed to pay if you are unable to.
There are a few options to consider in helping protect the cosigner:
It’s common for creditors to require a cosigner when obtaining items such as a credit card, personal loan or vehicle. If you are granted a discharge, it eliminates your obligation to pay outstanding debt owed; liability of the cosigner may not be affected. If you file Chapter 7 bankruptcy , the automatic stay goes into effect but may not protect your cosigner. You can reaffirm the debt by taking full responsibility so the cosigner isn’t pursued by creditors. You may also choose to pay the debt off with a payment arrangement. Keep in mind, if you choose to reaffirm the debt, it may not be eligible for discharge.
Chapter 13 bankruptcy allows cosigners to have better protection while giving you more time to pay the debt without pressure from creditors. A co-debtor stay offers protection for your cosigner while the automatic stay is in effect for yourself. Chapter 13 helps restructure your debt with a court-approved repayment plan that lasts anywhere from 3 to 5 years. As long as you make payments accordingly, creditors shouldn’t pursue collection attempts on the cosigner or debtor.