Cosigning on a loan is not unusual. In fact, cosigning is a common way to help someone with less than perfect credit. Often, it is a family member or a close friend. People cosign for different types of loans (car, mortgage, or student loan). But, did you know that when you cosign on a debt, you are equally liable for all payments? You become responsible for making sure all payments are made in full and on time, if the other person falls behind.
Bankruptcy & Cosigner’s Debt
The good news is that a cosigner’s liability on a debt does not change with the filing for bankruptcy. The only person affected will be the one filing for bankruptcy. However, the protections will differ depending on which chapter of bankruptcy is filed.
Can the Cosigner Take Over Payments?
A cosigner is able to take over payments if they are current. The lender will not care as long as the payments are being made on time and in full. On the other hand, if the loan is in default, then the cosigner will need to get the loan out of default before continuing monthly payments or paying it off in full.
How a Chapter 7 Can Help
Protection under the automatic stay will protect the filer, but not the cosigner in a Chapter 7. This means that creditors will be able to go after the cosigner and not the individual that filed for bankruptcy. There are ways to protect the cosigner: reaffirm the debt or pay it off in full.
How a Chapter 13 Can Help
When a portion of the debt is considered a “consumer debt,” a Chapter 13 will protect that debt through the automatic stay. This will provide time for the debtor to make payments on the debt through the Chapter 13 Plan. Creditors will be unable to take any action against the person filing on the debt as well as the cosigner during the open bankruptcy case. You should know that a creditor is able to petition the court to lift the automatic stay to seek action against the cosigner. While this is a possibility, it is not likely to happen.
Need More Information?
At the Law Office of Daniela Romero, we believe in relationships that are based on trust. Before we work together, we would like to get to know you. We also would like you to get to know us. We want you to be sure you are the right fit for us and that we are the perfect fit for you. This will allow you to be completely comfortable sharing intimate and difficult details of your case, so we can offer you representation to the fullest extent of the law. Call us today to set up a free consultation.