Are you considering bankruptcy, but are worried about what will happen to a co-signer? Well, there's good news and there's bad news. If a debtor files for Chapter 7 bankruptcy , the debt can be discharged, freeing the debtor from any further repayment obligation; but the co-signer on that debt may still be responsible for repaying it.
For example, if a debtor purchased a $15,000 vehicle with a co-signer, filed bankruptcy, returned the car; and the creditor was unable to sell the car for a price large enough to cover the loan--the balance might be discharged in bankruptcy; but the creditor still has the right to pursue the co-signer according to the agreement he/she signed.
On the other hand, if a debtor files for Chapter 13 bankruptcy , the co-signer will be protected under certain circumstances. Generally speaking, if a debtor is making regular payments through his/her Chapter 13 bankruptcy plan, the creditor cannot legally pursue the co-signer.
The creditor can only legally pursue the co-signer if the primary debtor files Chapter 7 bankruptcy, fails to make payments through his/her Chapter 13 bankruptcy plan or it becomes clear that the primary debtor will not repay all of the debt through Chapter 13 bankruptcy.
To find out more about bankruptcy and co-signers, please contact a Dallas-Fort Worth bankruptcy attorney today.